Research 3-11 - Week 2 Paper Topic: New Components of the...

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Week 2 Paper Topic: New Components of the DJIA Two important local firms, Chevron and Bank of America, were just added as two of the 30 stocks that make up the Dow Jones Industrial Average (DJIA), replacing Altria and Honeywell. For this paper, suppose that Chevron and BofA were not available as replacements (for example, if they were being taken over by a firm already a member of the index). Propose two new member firms, keeping in mind the principles of diversification and that the index is no longer “industrial” but instead attempts to be a measure of the overall health of the US stock markets. Explain why you chose your two candidates and discuss what’s good and bad about the DJIA. You can see the existing components of the Dow on a Wikipedia in an article that includes some of the important criticisms of this index and shows how the Average is calculated. Searching online for the “Fortune 500” will give you a list of the biggest US firms. (See WSJ article attached.) Propose two new member firms, keeping in mind the principles of diversification and that the index is no longer “industrial” but instead attempts to be a measure of the overall health of the US stock markets. Explain why you chose your two candidates and discuss what’s good and bad about the DJIA. What purpose does the DJIA purport to serve, and what purpose should it serve, in your opinion? Is it time to make the DJIA Market Cap weighted?As always, you should write
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This note was uploaded on 03/22/2009 for the course UGBA 08403 taught by Professor Robinson during the Spring '09 term at University of California, Berkeley.

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Research 3-11 - Week 2 Paper Topic: New Components of the...

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