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). Therefore, stocks with larger market capitalizations have a greater influence on the index's movements. Let's analyze each option: **Option A: has a high price** - This is incorrect because a high stock price alone doesn't necessarily mean a large market capitalization. A company could have a high stock price but few shares outstanding, resulting in a small market capitalization. **Option B: splits frequently** - This is incorrect because stock splits don't change a company's market capitalization. When a stock splits, the price decreases proportionally while the number of shares increases proportionally, leaving the total market value unchanged. **Option C: has a large market capitalization** - This is **CORRECT**. In a value-weighted index, stocks with larger market capitalizations have greater weight and therefore exert more influence on the index's performance. This creates a bias toward large-cap stocks, meaning the index is more sensitive to price movements of companies with large market capitalizations. ### Key Concept: - **Value-weighted index** = Market capitalization-weighted index - **Weight calculation**: (Stock price × Number of shares outstanding) ÷ (Total market capitalization of all index stocks) - **Bias**: Naturally overweights large-cap stocks and underweights small-cap stocks - **Examples**: S&P 500, NASDAQ Composite, FTSE 100 This bias is an inherent characteristic of value-weighted indices and is actually their defining feature, not necessarily a flaw unless one is trying to achieve equal representation of all companies regardless of size.

Author: LeetQuiz .