Suppose 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
To determine how an increase in the stock price of Microsoft affects the Dow Jones Industrial Average (DJIA), we need to understand how the DJIA is calculated.
The DJIA is a price-weighted index that represents the average value of 30 large, publicly traded companies. It is calculated by adding up the prices of all 30 stocks and dividing the total by a divisor. The divisor is adjusted periodically to ensure that changes in stock prices or corporate actions, such as stock splits or mergers, do not distort the index.
In this scenario, the stock price of Microsoft increases by $5 per share. Since the DJIA is a price-weighted index, the impact of this price change depends on the weight of Microsoft within the index.
Microsoft is one of the 30 stocks included in the DJIA, and its weight in the index is determined by its stock price relative to the other stocks. Without knowing the exact weight of Microsoft in the DJIA, it is not possible to determine the exact impact on the index.
Therefore, we cannot determine the exact number of points the DJIA would increase by due to the increase in Microsoft's stock price. The answer options provided (a) 37.80 points up, (b) 30.24 points up, and (c) 22.68 points up are all arbitrary and based on hypothetical calculations.
To get the most accurate answer, you would need to know the current weight of Microsoft within the DJIA and apply the appropriate calculations. The DJIA is maintained by Dow Jones & Company, and they regularly publish the weightings of the stocks within the index.