Homework: Computation of Dow Jones Industrial Average
1. Collect the names and closing share prices of the 30 companies in the DJIA from a recent WSJ or any other source (e.g., http://finance.yahoo.com). Compute the value of the DJIA using the divisor reported in the WSJ.State the date you picked for the computation.
2. Compare the value you computed with the value of the DJIA reported in the WSJ for the day you used. Are the two values same? Attach copy of the DJIA value for the date you picked from WSJ or other publication.
3. What is the weight of each company in the DJIA you computed?
4. Collect data on the number of shares traded for each company on the day you selected.
(a) Compute the market value of shares traded for each company.
(b) Compute the weight (wi) of each company using market value of each company in relation to the market value of all 30 companies. What is the sum of these weights?
(c) Identify companies with the highest and lowest weights. What explains the difference in weights?
(d) Compute "market value-weighted" average of the prices of the 30 companies included in the DJIA. (This is for exercise only- the MV weighted average would not represent the true picture of the price changes since the number of sharestraded on a given day is not a good proxy of the total number of shares outstanding for the company; however, the methodology to compute a more representative average is correct.)
5. Compute the value of the DJIA as in #1except that you use 30 as the divisor. Compare this value with that in #4 above. Which one is more realistic as a measure of "average price" of the 30 stocks in DJIA and why?
NOTES:
1. Each student works with a different set of prices of companies.
2. Clearly indicate the date you used.
3. The HW must be submitted in Excel. Use one worksheet for the narrative (Q1) and different worksheet for the showing computations.
4. Must show all computations using Excel
5. Multiple submissions of the same homework would be considered cheating and be penalized.