<h2>Price-Weighted Index</h2>
<p>A price-weighted index is a stock market index where the component stocks' weights are determined by their prices per share.</p>

<h2>How It Works</h2>
<p>In a price-weighted index, each stock's contribution to the index is proportional to its price per share. For instance, a stock priced at $100 would have twice the influence of a stock priced at $50.</p>
<p>The index's value is calculated by summing the prices of all component stocks and then dividing by a divisor. This divisor is adjusted over time to account for stock splits and other corporate actions.</p>
<p>Examples of price-weighted indices include the Dow Jones Industrial Average (DJIA) and the Nikkei 225.</p>

<h2>Why It Matters</h2>
<p>Price-weighted indices are simple to understand and calculate, making them popular among investors and the media. However, they have a significant drawback: they favor high-priced stocks, which may not necessarily be the best performers.</p>
<p>For example, consider two companies, A and B. Company A has a stock price of $100 and Company B has a stock price of $20. If both companies' earnings double, Company B's stock price will likely increase more (to $40), but in a price-weighted index, Company A's influence will remain twice that of Company B.</p>