General Question

calculator's avatar

How is the Dow Jones Industrial Average Fair Value calculated?

Asked by calculator (5 points ) December 15th, 2013

The Fair Value is posted before the market opens each day.

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1 Answer

Smitha's avatar

As per information from this site

The Fair Value of the Dow Jones Industrial Average depends (only) on four things: i) the return that investors require, ii) the current earnings and dividend level, iii) the expected growth rate in earnings and dividends, and iv) the expected P/E ratio at which it could be sold at the end of a reasonable holding period of say 10 years.

In order to calculate a fair value of the Dow Jones Industrial Average, it is necessary to start with its current earnings level and to make sure that this current earnings level is reasonably “representative” of “normal” expected economic conditions and has not been materially affected upwards or downwards by usual items.

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