What is the DJIA?
The Dow Jones Industrial Average (DJIA) is an index of thirty, blue chip stocks that are traded in the United States. It is believed that by looking at the companies on the list, a person can get a general picture of how the market as a whole is performing. The Dow is perhaps the most quoted and followed index in the world, and dates back to May 26, 1896. It was then comprised of 12 stocks and opened at 40.94.
When was the Dow Jones created and by whom?
The index was started in 1884 by Charles Dow (1851-1902) and Edward Davis Jones (1856-1920) as an average consisting mostly of railroad stocks. 1896, Dow Jones created the industrial average (with 12 stocks) and separated the railroad stocks into a separate average (renamed the transportation index in 1970); daily publication of the average began in the Wall Street Journal later that year.
Name the businesses that made up the original DJIA
- General Electric- Making energy-efficient products that are easy on the environment.
- American Cotton Oil- Predecessor of Bestfoods
- American Sugar- Evolved into Amstar Holdings
- American Tobacco- Broken up in 1911 by antitrust actions
- Chicago Gas- Now part of Peoples Energy
- Distilling & Cattle Feeding- Evolved into Millennium Chemicals
- Laclede Gas- Still in operation as Laclede Group
- National Lead- Now known as NL Industries
- North American- Utility broken up in the 1940s
- Tennessee Coal, Iron and Railroad Company- Bought by U.S. Steel
- U.S. Leather- Dissolved in 1952
- U.S.Rubber- Now part of Michelin
Which of these companies still exists in some form today - what is the company name today?
General Electric
How many companies make up the Dow Jones today?
The Dow Jones Industrial Average is a scaled average of the thirty (30) most widely-held stocks in America.
Name five of these companies and identify what
- Coca-Cola Co.- Soft drinks
- McDonald's Corp.- Restaurants & Bars
- Johnson & Johnson- Pharmaceuticals
- Microsoft Corp.- Software
- Wal-Mart Stores Inc.- Broadline Retailers
Explain the basics of how the DJIA is computed
The calculation of the Dow Jones Industrial Average remains similar to the original simple average method. The the share price of all 30 stocks is added together and the total is divided by a factor to determine the index value. The factor that is dividend into the total of the stock values is called the divisor. The divisor is adjusted by the Dow Jones Company whenever a change happens to the stock values in the index that is not due to normal market fluctuation.
Which companies have the greatest affect on the Dow Jones?
The highest-price stock
Which two stock exchanges sell components of the DJIA?
What is the meaning of a "bear" market?
A prolonged period in which investment prices fall, accompanied by widespread pessimism. If the period of falling stock prices is short and immediately follows a period of rising stock prices, it is instead called a correction. Bear markets usually occur when the economy is in a recession and unemployment is high, or when inflation is rising quickly. The most famous bear market in U.S. history was the Great Depression of the 1930s. The term "bear" has been used in a financial context since at least the early 18th century. While its origins are unclear, the term may have originated from traders who sold bear skins with the expectations that prices would fall in the future.
What is the meaning of a "bull" market?
A prolonged period in which investment prices rise faster than their historical average. Bull markets can happen as are result of an economic recovery, an economic boom, or investor psychology. The longest and most famous bull market is the one that began in the early 1990s in which the U.S. equity markets grew at their fastest pace ever.
