Answer-first summary for fast verification
Answer: Stock 2
## Explanation In an equal-weighted index with 16 stocks, each stock should have an equal weight of **1/16 = 6.25%**. From the table: - Stock 1: 5.50% (below target weight) - Stock 2: 6.25% (exactly at target weight) - Stock 3: 7.00% (above target weight) When the index is rebalanced: 1. **Stock 1** (5.50%) needs to be **bought** to increase its weight to 6.25% 2. **Stock 2** (6.25%) is already at the target weight, so its weight remains **unchanged** 3. **Stock 3** (7.00%) needs to be **sold** to decrease its weight to 6.25% Therefore, Stock 2's weight most likely remains unchanged during rebalancing. **Key Concept**: In equal-weighted indices, rebalancing involves buying stocks that are below their target weight and selling stocks that are above their target weight to bring all positions back to equal weights.
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An analyst gathers the following information about three stocks that are part of an equal-weighted index consisting of 16 stocks:
| Stock | End of Period Weight |
|---|---|
| 1 | 5.50% |
| 2 | 6.25% |
| 3 | 7.00% |
If the index is rebalanced, which stock's weight most likely remains unchanged?
A
Stock 1
B
Stock 2
C
Stock 3
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