The Dow Jones Industrial Average (DJIA) has become a benchmark for gauging the health of the economy and stock market. It is the most commonly cited index even with other, more comprehensive indexes available, for example, the Wilshire 5000, which takes an index of 5000 stocks. The DJIA looks at the high and low of the index (for 30 companies) at 10-second intervals throughout the day and uses a calculation to come up with an average or index value.
Things You'll Need
- Calculator or spreadsheet
Review the method used to calculate the DJIA. The DJIA is calculated using a price-weighted method. Most other market indexes are calculated on a market-capitalization basis. The price-weighted method places equal importance on each stock, regardless of the size of the company in the marketplace.
Look up the current price for each stock in the Dow 30. See Resources for a listing of the stocks currently in the Dow 30.
Calculate theoretical price-weighted average. Add up the price of 1 share of stock in all 30 of the stocks listed on the Dow and divide by 30. This worked 127 years ago, when the DJIA was first calculated. Now, because of all the recalculations, the index uses a multiplier to calculate the value.
Multiply stock prices of those companies in the Dow 30 by the Dow multiplier and sum. The current (November 18, 2009) multiplier is 7.964782. This means you need to multiply each price in the DJIA by this number and then sum for the average.
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