1. Ross Finance Club Weekly Breakout Sales, Trading, and Research December 5, 2004 Zachary Emig MBA Class of 2005

2. Agenda I. Major Stock Indices

3. Dow Jones Industrial Average Since 1928, 30 component stocks. Since 1928, 30 component stocks. Stocks are decided by editors of the Wall Street Journal (owned by Dow Jones). Stocks are decided by editors of the Wall Street Journal (owned by Dow Jones). 30 DJIA stocks intended to represent 25% to 30% of the overall market. 30 DJIA stocks intended to represent 25% to 30% of the overall market. At any moment, the index price is determined by summing the components stock prices and dividing by the adjusted divisor. At any moment, the index price is determined by summing the components stock prices and dividing by the adjusted divisor. DJIA is a price weighted index – the higher a component’s price goes, the more weight it has within the index. DJIA is a price weighted index – the higher a component’s price goes, the more weight it has within the index. http://www.djindexes.com/downloads/brochure_info/Dow_Brochure.pdf

4. DJIA Example: COB 11/22/2004 With the closing values, we can roughly calculate what the divisor is.

5. DJIA Example: COB 11/22/2004 Let’s say that Dow Jones wanted to take out low- tech Microsoft (MSFT) and add high-tech Union Pacific (UNP). Let’s say that Dow Jones wanted to take out low- tech Microsoft (MSFT) and add high-tech Union Pacific (UNP). UNP’s closing on 11/22: $63.45. UNP’s closing on 11/22: $63.45. Add up the new components’ prices. Add up the new components’ prices. Divide the sum by the previous DJIA closing. Divide the sum by the previous DJIA closing. This returns the new divisor. This returns the new divisor.

6. S&P 500 S&P 500 comprised of the 500 largest cap US stocks. S&P 500 comprised of the 500 largest cap US stocks. Usually covers about 80% of total market value. Usually covers about 80% of total market value. In comparison to the DJIA, the S&P 500 is market cap weighted: companies with bigger market caps (# shares x price) have more effect. In comparison to the DJIA, the S&P 500 is market cap weighted: companies with bigger market caps (# shares x price) have more effect. Like the DJIA, the S&P 500 has a divisor to keep it’s value constant. Like the DJIA, the S&P 500 has a divisor to keep it’s value constant. Component list updated more frequently than DJIA due to criteria. Component list updated more frequently than DJIA due to criteria. http://www.standardandpoors.com

7. NASDAQ Composite Index Covers all domestic and international common stock listed on NASDAQ. Covers all domestic and international common stock listed on NASDAQ. Currently over 3,240 components. Currently over 3,240 components. Like the S&P 500, the index is market cap weighted. Like the S&P 500, the index is market cap weighted. Largest number of components. Largest number of components. Like every other index, has a divisor that must be adjusted for new equity issuance, stock splits, etc. Like every other index, has a divisor that must be adjusted for new equity issuance, stock splits, etc. http://www.nasdaq.com/reference/Comp_Eligibility_Criteria.stm