Asset classes and financial instruments - Stock and bond market indexes

5 important questions on Asset classes and financial instruments - Stock and bond market indexes

What is the Dow Jones Industrial Averages?

The Dow Jones Industrial Average (DJIA) of 30 large, “blue-chip” corporations.   

What is the price weighted average method?

See example on p73. Notice that price-weighted averages give higher-priced shares more weight in determin-
ing performance of the index. [Check if relevant to practice]

How are splits and price-weighted averaged computed in the Dow Jones?

[Check if relevant to practice]
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How does the S&P 500 improve upon the Dow Jones?

The Standard & Poor’s Composite 500 (S&P 500) stock index represents an improvement over the Dow Jones Averages in two ways. First, it is a more broadly based index of 500 firms. Second, it is a market-value-weighted index.

What is a market value weighted index?

Unlike the price-weighted index, the value-weighted index gives more weight to ABC. Whereas the price-weighted index fell because it was dominated by higher-price XYZ, the value-weighted index rises because it gives more weight to ABC, the stock with the higher total market value.
Market-value-weighted indexes are unaffected by stock splits.

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