There are several stock indexes that provide information about stock exchanges or stocks within an exchange....

There are several stock indexes that provide information about stock exchanges or stocks within an exchange. These indices (indexes) enable investors to compare the performance of individual stocks with general market indicators. Discuss the information contained in the Dow Jones Industrial Average and Standard & Poor’s 500.

Expert Solution

Answer: Dow Jones Industrial Average- DJIA is an index that represents the overall stock market and it shows the value of 30 large publicly traded companies in USA. It was created in 1896 by Charles Dow. DJIA is a barometer of stock market that shows the direction and movement of market. If DJIA is in positive, stock market is considered positive and if it is in red then stock market is negative.

DJIA is a price weighted index which means, higher priced stocks have more influence rather than lower price stocks on index performance. Its market capitalization is $6.56 trillion.

Standard & Poor’s 500- It is also an index that is based on market capitalization of 500 large US publicly traded companies. It was founded in 19527. It is based on Free float market capitalization-weighted method that is adjusted by the number of shares available for public trading. Current market capitalization of S&P 500 is US$24 Trillion. This index shows the broader picture of overall market and economy. It is a widely quoted American index because it represents the largest companies in USA.

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