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Answer: Securities representing a relatively large proportion of the target market value are underrepresented.
**Explanation:** Equal-weighted indices have several disadvantages. One key disadvantage is that securities constituting the largest fraction of the target market value are underrepresented, while those constituting a smaller fraction are overrepresented. This occurs because equal weighting does not account for the relative market capitalization of the securities. Option B correctly identifies this disadvantage. - **Option A** is incorrect because the issue is frequent rebalancing (not reconstitution) to maintain equal weights as prices change. - **Option C** is incorrect because smaller stocks are overrepresented, not underrepresented, in an equal-weighted index.
Author: LeetQuiz Editorial Team
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A disadvantage of an equal-weighted index is that:
A
Maintaining equal weights necessitates frequent rebalancing of the index.
B
Securities representing a relatively large proportion of the target market value are underrepresented.
C
Securities representing a relatively small proportion of the target market value are underrepresented.
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