Which of the following statements regarding stock market indexes is most accurate? a. The Dow Jones Industrial Average (DJIA) is a price-weighted index in which the sum of prices for the 30 stocks in the average is divided by 30 to obtain the index value at any point in time. b. A 5:1 stock split in GE, a stock included in both the DJIA and S&P 500 indexes, requires a portfolio manager indexed to the DJIA to buy additional GE shares to remain indexed, while a portfolio manager indexed to the S&P 500 need not buy or sell shares to remain indexed. c. Replacing GE, a stock included in both the DJIA and S&P 500 indexes, with XYZ in both indexes requires a portfolio manager indexed to the DJIA to sell GE and buy XYZ shares, while a portfolio manager indexed to the S&P 500 need not buy or sell shares to remain indexed. d. A 2:1 stock split in GE, a stock included in both the DJIA and S&P 500 indexes, requires a portfolio manager indexed to the DJIA to sell GE shares to remain indexed, while a portfolio manager indexed to the S&P 500 need not buy or sell shares to remain indexed. - Dinesh S
D. But I really like the idea of GE falling out of the S&P 500. I think that would require their market cap to drop about $390B. That’s like a month or two in Iraq.
agree with D as far as i know dija is calculated as if you had one share of each stock from the index plus you do not divide by30 cause you have an adjustment coeff
choice D is correct, you guys are obviously brilliant … I got so frustrated with this question, that I was not able to continue reading till choice D (which was the correct answer) … [Yet another trick employed in the CFAI actual exams?] - Dinesh S
man i forgot what each exchange stands for… whats a good way to remember these lil details?
DJIA — Price Weighted Index S&P 500 — Value Weighted Index ??? ---- Equal Weighted Index - Dinesh S
dija and nikkei are the major ones that are price weighted the rest are value hope i remember correctly
Can someone please explain the mechanics of what is happening so I better understand the rationale for selling GE shares versus buying? Many thanks
in the index DIJA-price weighted you are supposed to have 1 share of each company included. if you have a stock split 2;1 you will have to shares therefore you need to sell one S&p is value weighted so it doesnt matter if you have 2 stocks at 5$ or 1 at 10$ cause it goes on market cap. additional the dija because now instead of 1 stock worth 10 includes one worth 5 has a correction coefficient so the value of the index before and after the split will not be affected by this operation alone that is my understanding
Value Line index is an equal weighted index. http://www.investopedia.com/terms/v/valuelineindex.asp
yep, I just figured that out… 1. VL Composite Average is Equal Weighted Index 2. FT Ordinary Share Index is a Geometric Equal weighted Index - Dinesh S
Agree with D, but what is wrong with A?
DJIA uses adjusted-divisor and not just the number ‘30’ [I am talking bookish, you’ll need to hit some website to see the correct adjusted-divisor used as of today for DJIA] - Dinesh S
Divisor Change for Dow Jones Industrial AverageSM Starting at the open of stock market trading, Wednesday, June 13, 2007, the Dow Jones Industrial Average and the 65-stock Composite Average will be calculated with new divisors as a result of the following event: - Walt Disney Co. (DIS) is to spin off ABC Radio Holdings, Inc. Immediately following the spin off, Citadel Broadcasting Corp. (CDL) is to acquire ABC Radio Holdings, Inc.Walt Disney Co. (DIS) shareholders will be entitled to receive shares of common stock of Citadel Broadcasting Corp. (CDL). As a result, the divisors for the: Dow Jones Industrial Average change to 0.123017848 from 0.123051408 Dow Jones Composite Average to 0.762313865 from 0.762414535
good job barthezz good example
i guess we all learn from each other. that what makes this forum special. but nevertheless thanks florinpop.