...Problem 1 a. How is Dow Jones index computed? Write 1 paragraph on the history of when the Dow Jones Index was first initiated. Computation Method: Dow Jones is a price-weighted index. So, to calculate the DJIA, the sum of the prices of all 30 stocks is divided by a devisor which is named the Dow Divisor. The divisor is adjusted in case of stock splits, spinoffs or similar structural changes, to ensure that such events do not in themselves alter the numerical value of the DJIA. Early on, the initial divisor was composed of the original number of component companies; which made the DJIA at first, a simple arithmetic average. The present divisor, after many adjustments, is less than one (meaning the index is larger than the sum of the prices of the components). That is: Where p is the prices of the component stocks and d is the Dow Divisor. Events like stock splits or changes in the list of the companies composing the index alter the sum of the component prices. In these cases, in order to avoid discontinuity in the index, the Dow Divisor is updated so that the quotations right before and after the event coincides: History: Dow Jones & Co. was founded in 1882 by Charles Dow, Edward Jones and Charles Bergstresser. Despite popular belief, the first averages were not published in the Wall Street Journal but in its precursor, called the Customer's Afternoon Letter. The first averages didn't even include any industrial stocks. The focus was on the growth stocks of...
Words: 2208 - Pages: 9
...to the individual investor to become knowledgeable enough to tell why a fund will do well and which signs indicate a fund that does poorly. If I were to construct a mutual fund I would more than likely include companies that offered a combination of strong dividend stocks, aggressive growth companies, as well as a firm position in the real estate market. Strong Dividend Stocks Strong dividend stocks have a reputation of being large cap companies that offer a reliable rate of return on equity. These investment vehicles have historically shown the ability to do well even during a market correction, and some have remained in a strong position even in the midst of a recession. There are some very popular choices to go with within the Dow 30 list of companies. Strong companies such as General Electric, Coca Cola, and Proctor & Gamble have a great reputation for being stable companies that aren’t affected by large moves in the financial markets. These corporations are typically large cap companies that have offered dividend payments to shareholders for a long period of time. Many retirement funds are heavily invested into companies such as these. For that reason, companies like these would be a mandatory asset classification in a strong portfolio. Growth Stocks The companies that are breaching into new technologies and discovering new products to offer the market will be among the most profitable firms to invest in. These companies may also come with a sizeable...
Words: 918 - Pages: 4
...transaction would yield $9,957.08, resulting in a round-trip cost of $42.92. b. Suppose you could buy pounds at the bid rate and sell them at the ask rate. How many dollars would you have to transact in order to earn $1,000 on a round-trip transaction (buying pounds for dollars and then selling the pounds for dollars)? Answer. For every pound you could buy at the bid and sell at the ask, you would earn the spread of $0.007. To earn $1,000, you would have to transact £142,857.14 ($1,000/$0.0007). At the current bid rate of $1.624, this is equivalent to $232,000 (142,857.14 x $1.624). 4. Calculate the 30-day, 90-day, and 180-day forward discounts for the British pound. Answer. Here are the relevant rates for the pound: Spot: £1 = $1.8220 30-day forward: £1 = $1.8180 90-day forward: £1 = $1.8086 180-day forward: £1 = $1.7949 The 30-day forward discount is: [($1.8180 -...
Words: 2417 - Pages: 10
...Project Number: DZT0517 Stock Market Trading An Interactive Qualifying Project Report Submitted to the faculty of the Worcester Polytechnic Institute in partial fulfillment of the requirements for the Degree of Bachelor of Science by ___________________________________________ Meng-Yu Ni Date: August 2006 Approved by: __________________________ Professor Dalin Tang Project Advisor 1 Abstract Using the information from the internet and published books, a general understanding about stock market and trading strategies was obtained. The knowledge and trading strategies were applied in the market in a stock market simulation to get real-time trading experience. Experiences learned from using trading methods in this simulation will help me to become a better investor in the future. 2 Acknowledgement First, I want to thank my parents who gave me the opportunity to study at Worcester Polytechnic Institute in USA. Second, I would like to thank my advisor, Dalin Tang, who gave me advices, and help me during this whole project time. Thirdly, I want to thank Worcester Polytechnic Institute for giving me opportunity to do this project, which made me to learn more things from outside of classes by myself. Finally, I would like to thank all the people who gave me some help when I needed it. 3 Table of contents Abstract ........................................................................................................................... 2 Acknowledgement...
Words: 8065 - Pages: 33
... l¥wren Buff'etl. chaimwn of Berkshire Hatha~t~ay, almost never talks publicly abolllthe generallel'e! of stock prices- neither in his famed amw.al report norm Berkshire~· thronged annual meetings nor in the rare speeches Ire gi11es. But in the past few nwnlhs, on four occasions, Buj}'ell did step up to that .whject, laying out his opinions. in ways both analytical and crcatiFe, about the long-tam future for stocks. FORTUNE's Carol Loornis heard lhe last of those talks, gi1•en in September to a group ojBuffett's jiiends (of whom site is one). and also watchul a videotape ofthe first speech, given in July at Allen & Co. 's Sun Valley, Idaho. bash for business leaders. From those extemporaneous talks (the first made with the Dow Jones indu.\·trial rlverage at 1 J./9.J), Loomis distilled the following account of what Buff wid. Buffett re1•iewed if and weighed in with ett some clarifications. nvestors in stocks these days arc expecting far too much, and I'm going to explain why. T hat wil l inevitably set me to talking about the genera l stock market, a subject I' m usua lly unwilling to discuss. But I want to make one thing clear going in: Though I will be talki ng about the level of the ma rket , I will not be predicting its next moves. At Berkshi re we focus almost exclusively on the valuations of individual companies, looking only to a very lim ited extent at the valuation of the overall market. Even the n, valuing the market has nothing to do wit...
Words: 2203 - Pages: 9
...Dow Jones Industrial AverageTM Stated Objective To represent large and well-known U.S. companies. Covers all industries with the exception of Transportation and Utilities. Key Features — The index is maintained by the Averages Committee. — Components are added and deleted on an as-needed basis. For the sake of continuity, such changes are rare, and typically occur following corporate acquisitions or other significant changes in a component company's core business. When one component is replaced, all of them are reviewed. — While stock selection is not governed by quantitative rules, a stock typically is added only if the company has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors. Maintaining adequate sector representation within the index is also a consideration in the selection process. — The index is price weighted. — The Dow Jones Industrial AverageTM was first calculated on May 26, 1896. Descriptive Statistics Market Capitalization (Billions) ComponentCurrency Number | Float-Full Adjusted Mean Median Largest Smallest | USD 30 | 5,016.6 4,769.7 159.0 137.8 412.4 34.2 | Data calculated as of end of October, 2014. Mean, median, largest component and smallest component values are based on float-adjusted market capitalization. Performance ...
Words: 3120 - Pages: 13
...Course- Introduction To Business Name- Mohammad Mowla Date- 11/04/13 Case Assignment # 2 Dow Jones Index ( McDonald's ) The Dow Jones Industrial Average is average price of 30 stoccks traded on the New York Stock Exchange and Nasdaq. Charles Dow invented Dow Jones Industrial Average in 1896. Companies like General Electric, Disney, Exxon and Microsoft includes in the Dow Jones Industry Average. DJIA is one of the single and oldest index in the world. Roy Kroc discovered a small burger restaurent in california. From that time now it serve to 118 countries now with more than 34,000 restaurents serving nearly 69 millio people everyday.In 1961, Ray launched a training program, later called Hamburger University, at a new restaurant in Elk Grove Village, Illinois. There, franchisees and operators were trained in the scientific methods of running a successful McDonald’s. Hamburger U also had a research and to develop new cooking, freezing, storing and serving methods. Today, more than 80,000 people have graduated from the program. Sustainability is an important focus for McDonald’s. Their sustainability efforts shows that their business policies and practices complements their company and makes a positive impact on societies it’s involved in. McDonald’s rising and continual existence is very significant, along with numerous opportunities and expectations. It is employing over 1.8 million employees all around the world in over 118 countries. ...
Words: 485 - Pages: 2
...Executive Summary In July 2008, Dow Chemical announced an acquisition of Rohm and Haas, a specialty chemicals producer, in an attempt to implement its new strategy of pursuing high growth businesses. The financial crisis that hit in the fall and the termination of PIC joint venture called into question Dow’s ability to finance the deal. Based on the valuation models, paying $78/share for Rohm and Haas remained a good value for Dow post financial crisis as the combined company retained its ability to generate synergies. Dow should proceed with the deal as announced to prevent costly litigations and aim for maximizing long-term shareholder value. To avoid being downgraded to junk status and incurring other concerns of financial distress, Dow should attempt to renegotiate the terms of its financing, particularly its $13 million bridge loan. Table of Contents I. The Firms…………………………………………………...…….p. 3 a. Dow Chemical b. Rohm & Haas c. Petroleum Industries Company II. The Acquisition……………………………………………..……p. 3-5 d. The Rationale e. The Valuation f. The Financing III. The Risks……………………………………………………….…p. 5 IV. The Financial Crisis……………………………………….……...p. 5-7 g. The Macroeconomy and Industry h. The Firms i. The Post-Crisis WACC j. The Post-Crisis Valuation k. The Post-Crisis Financing V. The Recommendations……………………………………………p. 7-8 l. The Options m. The Recommendations ...
Words: 3832 - Pages: 16
...security is explained by 3 factors: market returns, sizes of firm and book values of firm : However, the model was unable to predict some market anomalies and a student of Fama’s found that adding a momentum factor helped to better predict these anomalies. While a momentum factor helps to explain the returns observed in the market, it also implies that markets are not efficient in any form. If that’s the case, then it should be possible to generate returns with a technical trading strategy on stocks that are significantly correlated with the momentum factor. Strategy Implementation Stock Screening We chose the firms within the Dow Jones Industrial 30 as our stock universe and traded all securities that are significantly correlated with the Fama-French Carhart Momentum Factor. The Dow 30 consists of high quality, highly liquid large cap stocks. Their liquidity characteristic increases the likelihood that “herding” will be observed and reduces the impact of entering and exiting positions. We gathered all the returns from 2010-2014 for these 30 companies including American Express, Dupont and Goldman Sachs and data of the four factors from 2010-2014. We ran simple linear regressions of daily stock returns within one calendar year against the daily metrics of the four factors and selected the companies that were significantly correlated with the...
Words: 1480 - Pages: 6
...system FoxMeyer’s plans did not work out. (ES), SAP R/3. At the After its major customer, Phar-Mor, if a system time of its R/3 imple- implementation went bankrupt in May 1993, mentation, beginFoxMeyer signed a major new cuswill be ning in 1995, Dow Corning Incorporated successful? tomer, University Healthsystem Conwas a $2.5 billion producer of silicone sortium (UHC). However, the contract products. The company was facing comrequired major changes to the project. petitive pressures as well as lawsuits worth Costs soared to over $100 million; and $2 billion due to well-publicized problems with sili- in August 1996 FoxMeyer filed for Chapter 11 bankcone breast implants. Existing systems were frag- ruptcy protection, after taking a charge of $34 milmented and focused on specific departments, making lion the previous month for inventory and order it difficult to present a common face to the cus- mix-ups. Following liquidation of its major assets in tomer.The company decided that its survival November 1997, FoxMeyer’s trustee sued Andersen depended on reengineering its business processes to Consulting, SAP, and Deloitte for $500 million each become a truly global company, an objective it in July and August 1998. The case against Deloitte believed could be met only with appropriate informa- was dismissed in May 1999. tion systems. It created Business Processes and InforThere are many reports of software project failures. mation Technology (BPIT) to support reengineering...
Words: 5692 - Pages: 23
...Revolution, as well as widespread political and economic changes in Africa during the initial stages of European Decolonization, did not stop the Dow's bullish climb higher. Additionally, the U.S. would also make its way through two grinding recessions; one in 1953 and another in 1958. A 200% increase in the average from a level of 206 to 616 ensued over the course of that decade. The Dow fell 22.61% on Black Monday (1987) from about the 2,500 level to around 1,750. Two days later, it rose 10.15% above the 2,000 level for a mild recovery attempt. The Dow's bullish behavior began to stall during the 1960s as the U.S. became entangled with foreign political issues. U.S. military excursions included the Bay of Pigs Invasion involving Cuba, the Vietnam War, the Portuguese Colonial War, theColombian civil war which the U.S. assisted with short-lived counter-guerrilla campaigns, as well as domestic issues such as theCivil Rights Movement and several influential political assassinations. For the decade though, and despite a mild recession between 1960 and 1961, the average still managed a respectable 30% gain from the 616 level to 800. The 1970s marked a time of economic uncertainty and troubled relations between the U.S. and certain Middle-Eastern countries. To begin with, the decade started off with the ongoing Recession of 1969–70. Following that, the 1970s Energy Crisisensued which included the 1973–75 recession, the 1973 Oil Crisis as well as the 1979 energy crisis beginning as...
Words: 2398 - Pages: 10
...Synopsis: Dow is acquiring Rohm and Haas from Ingersoll-Rand at an agreed price per share of $78. However, a deal with Kuwait’s Petrochemical Industries Company, which was supposed to generate $7 billion of cash to be used to finance the acquisition, had recently fell-through. The hiccup has led to Rohm taking legal action to force Dow to complete the acquisition as required by the merger agreement. The standalone value of Rohm’s share price is currently at $46.77 while the synergies could almost double that to $94.63 per share. By going ahead with the deal Dow would need to raise capital and that might lead to a lower bond rating. 1. Why does Dow want to buy Rohm and Haas? Dow believes the acquisition of Rohm and Haas would be a defining step in their transformational strategy to shape the “Dow of Tomorrow”. The acquisition of Rohm and Haas would provide a strong fit strategically and operationally for Dow. The combined companies would bring the best-in-class products and technologies, broad geographic reach and strong industry channels to create an outstanding business portfolio with significant growth opportunities. Rohm would provide Dow with an expanded network into emerging markets thereby increasing Dow’s sources of revenues for the future as well as adding a strong and experienced leadership team with a culture of customer focus and innovation. Together the geographic strengths of each company would help realize economies of scale through the combined R&D,...
Words: 2181 - Pages: 9
...The number of international stock market indexes is . quite large. For many of us, the level of the Dow or . the S&P 500 is known. How about the Nikkei 225? Or . the FTSE 100? Do you know what countries these . represent? ------------------------------------------------- Types of indices Stock market indices may be classed in many ways. A 'world' or 'global' stock market index includes (typically large) companies without regard for where they are domiciled or traded. Two examples are and S&P Global 100. A 'national' index represents the performance of the stock market of a given nation—and by proxy, reflects investor sentiment on the state of its economy. The most regularly quoted market indices are national indices composed of the stocks of large companies listed on a nation's largest stock exchanges, such as the American S&P 500, the Japanese Nikkei 225, and the British FTSE 100. Other indices may be regional, such as the FTSE Developed Europe Index or the FTSE Developed Asia Pacific Index. The concept may be extended well beyond an exchange. The Wilshire 5000 Index, the original total market index, represents the stocks of nearly every publicly traded company in the United States, including all U.S. stocks traded on the New York Stock Exchange (but not ADRs or limited partnerships), NASDAQ and American Stock Exchange. Russell Investment Group added to the family of indices by launching the Russel Global Index. More specialized indices...
Words: 5657 - Pages: 23
...Solution Manual Chapter 1 - Accounting for Intercorporate Investments 1. a. If the investor acquired 100% of the investee at book value, the Equity Investment account is equal to the Stockholders’ Equity of the investee company. It, therefore, includes the assets and liabilities of the investee company in one account. The investor’s balance sheet, therefore, includes the Stockholders’ Equity of the investee company, and, implicitly, its assets and liabilities. In the consolidation process, the balance sheets of the investor and investee company are brought together. Consolidated Stockholders’ Equity will be the same as that which the investor currently reports; only total assets and total liabilities will change. b. If the investor owns 100% of the investee, the equity income that the investor reports is equal to the net income of the investee, thus implicitly including its revenues and expenses. Replacing the equity income with the revenues and expense of the investee company in the consolidation process will yield the same net income. 2. FASB ASC 323-10 provides the following guidance with respect to the accounting for receipt of dividends using the equity method: The equity method tends to be most appropriate if an investment enables the investor to influence the operating or financial decisions of the investee. The investor then has a degree of responsibility for the return on its investment, and it is appropriate to include in the results of operations...
Words: 5410 - Pages: 22
...company’s required rate of return on its stock is 10%, what is the equilibrium price of the stock? (b) How can you find if your own 10% estimate of the stock’s required rate of return is shared by the rest of the market? (c) Now assume that the required estimate of 10% is shared by the market, what does the market price of $50.00 per share imply about the market’s estimate of the company’s growth rate? $1 $100 10% 10% 95% $10 $180 10% 10% 50% $15 $200 10% 15% 25% Question 3 Starting date: Closing Prices on the date (Nov 5) of the submission date of Problem Set 6 Ending Date: Closing Prices, Nov 24. Assume that you have $100,000 that you decided to invest in either 1 company or 2 companies from the 30 companies that are listed below (these are the companies that the dow index is constructed from). Your performance in problem set 10 will be evaluated according to: (return of your portfolio minus Rf)/ Beta of the portfolio In the evaluation, we will make few simplifying assumptions: 1. The Beta of each share will be taken from Yahoo finance. 2. For simplicity you will be given a constant rate for the Rf =0. Yet the evaluation is in problem set 10 – so what do you need to do for THIS problem set? For this...
Words: 579 - Pages: 3
