CFA Level IEquity InvestmentsHard
An index provider constructs a float-adjusted market-capitalization-weighted index with two constituents. Company X has 100 million total shares outstanding, a share price of $50, and a public float of 60%. Company Y has 200 million total shares outstanding, a share price of $20, and a public float of 80%. What is Company X's approximate weight in the index?
- A46.15%
- B50.00%
- C48.39%
- D51.61%
Show answer & explanationAnswer & explanation
Correct answer: C. 48.39%
Float-adjusted market cap X = 100M × 0.60 × $50 = $3,000M. Float-adjusted market cap Y = 200M × 0.80 × $20 = $3,200M. Total = $6,200M. Weight of X = 3,000/6,200 = 48.39%.
Why the other options are wrong
- A. This is the ratio inverted incorrectly relative to total market cap.
- B. This assumes equal weighting, ignoring both price and float differences.
- D. This is Company Y's weight (3,200/6,200), mistakenly assigned to X.
Float-adjusted market-cap weighting
An index weighting method that uses only the publicly tradable (float-adjusted) shares of each constituent rather than total shares outstanding.
- Float-adjusted market cap = shares outstanding × float % × price
- Excludes closely held or restricted shares from weighting
- Most major broad market indexes use this method today
Memory trick: Only the shares that can actually trade get to vote in the index.