Answer: has a large market capitalization

## Explanation A value-weighted equity index (also known as a market capitalization-weighted index) is constructed by weighting each stock according to its total market capitalization (price per share × number of shares outstanding). **Analysis of each option:** 1. **Option A: has a high price** - This is incorrect because a high stock price alone doesn't necessarily create bias in a value-weighted index. The index weights stocks by market capitalization, not just price. A stock with a high price but few shares outstanding would have a small market cap and thus a small weight in the index. 2. **Option B: splits frequently** - This is incorrect because stock splits don't affect market capitalization. When a stock splits, the price decreases proportionally while the number of shares increases proportionally, leaving the total market capitalization unchanged. Therefore, frequent splits don't bias a value-weighted index. 3. **Option C: has a large market capitalization** - This is **CORRECT**. In a value-weighted index, stocks with larger market capitalizations have greater influence on the index's performance. This creates a bias toward large-cap stocks, as they dominate the index movements. This is an inherent characteristic of value-weighted indices - they are biased toward larger companies. **Key Concept:** - Value-weighted indices reflect the performance of stocks in proportion to their market value - Larger companies have greater influence on index movements - This creates a "large-cap bias" in the index - This is different from price-weighted indices (like the Dow Jones Industrial Average) where high-priced stocks have more influence

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