Question

Imagine that the Mini-Dow Average (MDA) is based on the closing prices of 5 stocks. The divisor used in the calculation of the MDA is currently 0.765. The closing prices for each of the 5 stocks in the MDA today and exactly 1 year ago, when the divisor was 0.780, are given in the following table: EEB a. Calculate the MDA today and that of a year ago b. Compare the values of the MDA calculated in part a and describe the apparent market behavior over the last year. Was it a bull or bear market? a. The MDA today isRound to two decimal places.) Data Table Stock Ace Computers Coburn Motor Company National Soap & Cosmetics Ronto Foods Wings Aircraft (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Today $74.57 36.23 109.91 72.98 95.93 1 Year Ago 564.29 33.96 97.82 73.35 86.82

Answer 1

a.

the dow average or the mini dow average, in this case, is calculated by summing up the stock prices of its constituents and dividing by the divisor.

(A little bit about the divisor: When dow average was calculated the very first time, divisor was simply the number of constituent stocks i.e. the dow average was a simple arithmetic average of stock prices of its constituents. But today, the value of divisor is very different, which accounts for many corporate actions such as stock splits, spin offs etc)

$MDA_{today}=\frac{74.57+36.23+109.91+72.98+95.93}{0.765}=509.3$

$MDA_{a\:year\:ago}=\frac{64.29+33.96+97.82+73.35+86.82}{0.780}=456.7$

b.

So, it can be seen that the MDA value appreciated by 11.5% in a span of one year which is a great return. The market was definitely a bull market.