Unit 04 Dow Jones Industrial Index

Camilo Lorenzo

March 13, 2011

Dr. James Taylor (BA421)

Unit 04 Indexes

Indexes

The following will show how indexes are set up, calculated and indexes are used as an important function in the investment process. Eventually, understanding systematic function of indexes will help understand more about stocks values which will lead to purchasing stocks with earning value.

Dow Jones Industrial Index

To calculate the DJIA, the sum of the prices of all 30 stocks is divided by a Divisor, the Dow Divisor. The present divisor, after many adjustments, is less than one (meaning the index is larger than the sum of the prices of the components). That is:

Where p are the prices of the component stocks and d is the Dow Divisor.

The Dow Divisor is consistently being updated so that the quotations right

before and after the event coincides:

Above retrieved from wikipedia.org

The Dow Industry consists of the top 30 stock in United States Companies. The Dow Jones Industrial Index used to show how well the top 30 U.S. publicly traded companies are performing. This can use for investor as a tool market intelligence. Investor may create strategy based on the Dow Jones Industrial Index.

Dow Jones Transportation Index

Dow Jones Transportation Index is an average of public traded companies in the transportation industry. Transportation such as shipping service by ocean, railroad, overland, and air. The transportation average is also being an economic indicator of international trade of goods and services. This can help investors determine how the markets are communicating with foreign markets.

Dow Jones Utility Index

The Dow Jones Utility Index is an average of public traded companies in the utility industry. Utilities are composed of electricity, gas, and water. The Dow Jones Utility Index helps segment the market. Ultimately the Dow Jones helps the investor by segmenting the market into industry, transportation, and Utility.

Dow Jones 65

Finally, top 65 prominent publicly trade companies from the transportation, utility, and industry index. This created the Dow Jones 65. Investors can use the Dow Jones 65 as tool for market intelligence. Because the Dow has segmented the market and taken the prominent publicly trade the Dow adds value to Investors.

NYSE Composite Index

NYSE