Chapter 9 Lecture and Book Notes Investment Information and Securities Transactions Market Averages and Indexes Used to assess the behavior of securities markets Measure prices over time Average and Index used INTERCHANGEABLY 1 General market movement 2 Forecasting 3 Study market cycles trends and behaviors in order to forecast future market behavior Averages reflect the arithmetic average price behavior of a representative group of stocks at a Benchmarks given point in time Indexes measure the current price behavior of a representative group of stocks in relation to a base value set to an earlier point in time Continually revised throughout the day These compare changes Dow Jones Averages 4 stock averages Made up of groups of firms to track general market behavior Dow Jones Industrial Average high quality stocks to reflect overall market activity When a new stock is added average is readjusted so that it continues to behave in manner Equally weighted average changes in higher priced components have greater impact on consistent with immediate past average Divisor maintains comparative relationship over time Higher priced stocks tend to affect index more than lower priced stocks duh Most widely cited stock market indicator One point of DJIA does not represent a single dollar amount One point currently translates into about 44 cents in average share value Standard and Poor s Indexes 500 major firms across sectors S P 500 is broader than DJIA All US firms but with global exposure Almost 50 of production sales and profits of US firms come from overseas business Amount paid in foreign tax is more than amount paid in US tax Considers market value of constituent firms Value weighted MV closing price x of shares S P contain many more shares than Dow based on market values rather than share prices Broader based measure of market conditions than Dow Closing market value of each stock closing price X of shares o s New York Stock Exchange NYSE Behavior of NYSE similar to DJIA and S P 500 AMEX composite index Relative base of 550 Nasdaq Stock Market indexes Relative base of 100 Value Line Indexes change in stock prices each stock in the index Nasdaq Composite Index 3000 US and International firms High concentration of technical and growth firms of stock indexes constructed equally by weighting the price of each stock included Eliminates effects of differing market price and total market value on relative importance of Frank Russell pension advisory firm Bond Market Indicators Key measures of overall U S bond market behavior are bond yields and bond indexes Bond yield return an investor would receive on a bond if it were purchased and held to maturity Reported as annual rates of return Quoted for a group of bonds that are similar with respect to type and quality Bond indexes mathematical average of closing prices for the bonds
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