Question: The stock of Microsoft increases in value by $5 per share. If all other Dow stock prices remain unchanged, how does this affect the DJIA?
A.37.80 points up
B.30.24 points up
C.22.68 points up
D.15.12 points up
Not sure how to setup this problem at all.
To solve this problem, you need to understand how the Dow Jones Industrial Average (DJIA) is calculated. The DJIA is a stock market index that represents the average value of 30 large, publicly owned companies traded on the stock market in the United States.
The DJIA is a price-weighted index, which means that the index value is calculated based on the prices of the individual stocks included in the index and not their total market capitalization. Each stock's price is multiplied by a specific "stock divisor" to determine its impact on the index.
To determine the effect of Microsoft's stock price increase on the DJIA, you need to know the stock divisor for Microsoft in the index.
Unfortunately, the stock divisor is not given in the question, so we cannot calculate the exact effect on the DJIA. However, we can still determine the approximate effect using an estimate.
To estimate the effect, you can divide the increase in Microsoft's stock price ($5) by the stock divisor for Microsoft. Let's assume that the stock divisor is 0.094.
Approximate effect on the DJIA = (Increase in Microsoft's stock price) / (Stock divisor for Microsoft)
= $5 / 0.094
= 53.19
Since the DJIA is a whole number and rounded to the nearest whole number, the approximate effect on the DJIA would be 53 points up.
Given the answer choices provided, none of them match exactly with the calculated effect of 53 points up. Therefore, it is not possible to determine the exact effect on the DJIA without knowing the stock divisor for Microsoft in the index.