09. Market Cap Weighting

L1 10 Market Cap Weighting V2

Market Cap Weighting

We can get an index by adding up the market cap of all stocks in the index. Note that in practice, we’ll rescale this number. You’ll see this later in the lesson.
\sum_{1}^{n} (price_i \times number of shares_i)

Market Cap Weighting

A market cap weighted index has two stocks, A and B. Stock A has 3 million shares at $5 per share. Stock B has 10 million shares at $2 per share. What are the weights of stock A and B in the portfolio?

SOLUTION: 43% stock A, 57% stock B