Question

The Vanguard 500 Index Fund tracks the performance of the S&P 500. To do so, the fund buys shares in each S&P 500 company __________.
a. by purchasing an equal number of shares of each stock in the S&P 500 in proportion to the price weight of the stock in the S&P 500
b. by purchasing an equal dollar amount of shares of each stock in the S&P 500 in proportion to the market value weight of the firm's equity in the S&P 500

Answer 1

Answer:

The answer is: A) by purchasing an equal number of shares of each stock in the S&P 500 in proportion to the price weight of the stock in the S&P 500

Explanation:

The Vanguard 500 Index Fund Investor Shares (VFINX) attempts to provide investors with return rates corresponding to the S&P 500 Index performance. To do so, the VFINX invests in stocks included in the S&P 500 in the same proportion as their weight in the index. Because of this, the VFINX has an extremely high degree of positive correlation with the S&P 500.