Stock Indices-FIN6404 - Stock Indices Every day we hear...

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Stock Indices Every day we hear that the Dow was up (or down) or that the S&P was such and such. What does it mean? What is the Dow? What is the S&P? In order to gauge how the stock market did on a particular day or a longer period, we use a market index to measure performance. Market indices take many flavors. For example, the Dow Jones Industrial average, the most famous index in the world, is a price weighted index or 30 large firms that are on the New York Stock Exchange (NYSE). Others indicies, such as the S&P 500 are market value based. Market value index This type of index uses the market value of equity in calculating returns. For example: Day 1 Shares Stock Price o/s Market value A 10 1,000,000 10,000,000 B 15 6,000,000 90,000,000 C 20 5,000,000 100,000,000 = 200,000,000 = Total market value of stocks in Index We then make this the base=100 Day 2 Suppose that Stock B splits 2:1 and stock C pays a 10% stock dividend. Moreover, the prices on
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This note was uploaded on 10/01/2011 for the course FIN 6404 taught by Professor P.ramanlal during the Spring '11 term at University of Central Florida.

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Stock Indices-FIN6404 - Stock Indices Every day we hear...

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