On October 28, 2015, the DJIA opened at 17,642.41. The divisor at that time was

Question

On October 28, 2015, the DJIA opened at 17,642.41. The divisor at that time was 0.149677122. In October 2015, Goldman Sachs was the highest priced stock in the DJIA and Cisco was the lowest. The closing price for Goldman Sachs on October 27, 2015, was $183.35, and the closing price for Cisco was $28.72. Calculate the difference between the new DJIA levels under the following two scenarios (i.e.g, Scenario 1 - Scenario 2). Scenario 1: Suppose the next day the other 29 stock prices remained unchanged and Goldman Sachs increased 5 percent. Scenario 2: Suppose the next day the other 29 stock prices remained unchanged and Cisco Sachs increased 5 percent. (Round your answer to 2 decimal places.)

Explanation / Answer

1. DJIAi = 17642.41 = stocki / divisor where divisor = 0.149677122

2. stocki = 17642.41*0.149677122 = 2640.66665071

3. If only Goldman Sachs increased to 5%, stockNew = 2640.66665071 + 183.35*0.05 = 2649.83415071

Hence, DJIANew = stockNew / divisor = 2649.83415071/ 0.149677122 = 17703.67

4. Alternately, If only Cisco Sachs increased to 5%, stockNew = 2640.66665071 + 28.72*0.05 = 2642.10265071

Hence, DJIANew = stockNew / divisor = 2642.10265071/ 0.149677122 = 17652.01

Hence,

DJIA if Goldman Sachs increases 5 percent = 17703.67

DJIA if Cisco Sachs increases 5 percent = 17652.01

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