Keta’s assets. Shares in U.S. Leather, which in 1909 was the seventh-
largest corporation in the United States, became worthless.Computation of the Dow Index
The original Dow Jones averages were simply the sum of the prices of
the component shares divided by the number of stocks in the index.
However, this divisor had to be adjusted over time to prevent jumps in
the index when there were changes in the companies that constituted the
average and stock splits. In December 2006, the divisor was about
0.1248, so that a 1-point rise in any Dow stock caused the average to in-
crease about 8 points.^2CHAPTER 3 Stock Indexes 39
TABLE 3–1
Firms in the Dow Jones Industrial Average(^2) The procedure for computing the Dow Jones averages when a new (or split) stock is substituted is
as follows: the component stock prices are added up before and after the change, and a new divisor
is determined that yields the same average as before the change. Because of stock splits, the divisor
generally moves downward over time, but the divisor could increase if a higher-priced stock is sub-
stituted for a lower-priced one in the average.