Quiz | March 2011

HOW NOW DOW?

The Dow Jones industrial average is one of the U.S.'s oldest and most-quoted stock market barometers. But how much do you really know about how the index operates and its relevancy for investors?

Take our ten-question quiz to test your Dow know-how.

Quiz

HOW NOW DOW?

Question 1 of 10

How many stocks are in the Dow Jones industrial average?

A. 30
B. 50
C. 100
D. 500

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HOW NOW DOW?

Question 1 of 10

How many stocks are in the Dow Jones industrial average?

You're right! A. 30 is correct.

Sorry, wrong! is incorrect.

The right answer is A. 30.

The Dow Jones industrial average is one of the most referenced indexes of the stock market, yet it tracks only 30 stocks. The original index, launched in 1896, featured only 12 stocks. Investors looking for a broader gauge of stock market performance might look to the Wilshire 5000, Russell 3000 or S&P 500 indexes.

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HOW NOW DOW?

Question 2 of 10

On May 6, 2010, the "flash crash" sent the Dow tumbling in a matter of minutes between 2:30 p.m. and 3 p.m. before recovering somewhat by the end of the day. At the deepest point from the day’s high to its low, the Dow was down:

A. 1105 points
B. 738 points
C. 999 points

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HOW NOW DOW?

Question 2 of 10

You're right! C. 999 points is correct.

Sorry, wrong! is incorrect.

The right answer is C. 999 points.

For most of that infamous day before the "flash crash," the market was already down 3% with traders in a mood to sell because of fear that a Greek bond default would destabilize the world’s financial markets. Then, after a single trader’s small programmed sale of derivatives set off a cascade of uncontrolled, high-frequency index selling, stocks lost so much value for 15 minutes that it would have been far cheaper to just give Greece the money to pay its debts. Currently, there’s no assurance that this won’t happen again.

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HOW NOW DOW?

Question 3 of 10

The Dow lost 22.6% of its value on October 19, 1987 -- Black Monday. When did the index see its largest percentage gain?

A. March 15, 1933
B. June 12, 1958
C. September 8, 1995

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HOW NOW DOW?

Question 3 of 10

The Dow lost 22.6% of its value on October 19, 1987 -- Black Monday. When did the index see its largest percentage gain?

You're right! A. March 15, 1933 is correct.

Sorry, wrong! is incorrect.

The right answer is A. March 15, 1933.

The Dow's largest one-day percentage gain -- 15.3% -- happened in the midst of the 1930s bear market. In fact, four of the index's top five best-performing days happened between 1929 and 1933.

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HOW NOW DOW?

Question 4 of 10

General Electric is the only original Dow Jones industrial average stock left from the index's beginning. What current Dow member stock is second to GE in tenure?

A. IBM
B. Procter & Gamble
C. Coca-Cola
D. DuPont

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HOW NOW DOW?

Question 4 of 10

General Electric is the only original Dow Jones industrial average stock left from the index's beginning. What current Dow member stock is second to GE in tenure?

You're right! D. DuPont is correct.

Sorry, wrong! is incorrect.

The right answer is D. DuPont.

GE has been a member of the Dow for 113 years. DuPont is the second-oldest veteran. It had a brief stint on the index from 1924-25, but has been a steady member since 1935 -- for a total tenure of about 75 years.

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HOW NOW DOW?

Question 5 of 10

The "Dogs of the Dow" refers to what?

A. The worst-performing Dow stocks
B. The Dow stocks with the highest dividend yields
C. Dow companies that are losing money

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HOW NOW DOW?

Question 5 of 10

The "Dogs of the Dow" refers to what?

You're right! B. The Dow stocks with the highest dividend yields is correct.

Sorry, wrong! is incorrect.

The right answer is B. The Dow stocks with the highest dividend yields.

A yield-oriented stock-picking strategy based on the "Dogs of the Dow" is an old and simple trick: Buy equal amounts of the ten stocks in the Dow Jones industrial average with the highest yield, hold them for a year, then boot out those that are no longer among the top ten and replace them with new arrivals.

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HOW NOW DOW?

Question 6 of 10

For how many years must a company pay cash dividends before it qualifies to be a Dow member?

A. 25 years
B. 10 years
C. 1 year
D. There is no such rule

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HOW NOW DOW?

Question 6 of 10

For how many years must a company pay cash dividends before it qualifies to be a Dow member?

You're right! D. There is no such rule is correct.

Sorry, wrong! is incorrect.

The right answer is D. There is no such rule.

Although half of the long-term investment return in Dow stocks comes from reinvested cash dividends, there is no requirement for a member company to pay any. Cisco Systems, the newest Dow member and the replacement for General Motors, has never paid a cash dividend although it easily could, as it has $33 billion on hand and little debt. Bank of America currently pays one penny a quarter, a result of the government's directive to banks to shore up their capital.

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HOW NOW DOW?

Question 7 of 10

The Dow saw its largest post-election drop the day after which presidential election?

A. Franklin Roosevelt vs. Herbert Hoover (1932)
B. Richard Nixon vs. George McGovern (1972)
C. George W. Bush vs. Al Gore (2000)
D. Barack Obama vs. John McCain (2008)

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HOW NOW DOW?

Question 7 of 10

The Dow saw its largest post-election drop the day after which presidential election?

You're right! D. Barack Obama vs. John McCain (2008) is correct.

Sorry, wrong! is incorrect.

The right answer is D. Barack Obama vs. John McCain (2008).

The Dow Jones industrial average fell by 5% the day after Barack Obama became President-Elect, according to Reuters. The largest increases after an election occurred in 1896 and 1900 with William McKinley's election and re-election. The day after the George W. Bush and Al Gore election contest, when no winner was yet named, the market dropped by only 0.4%.

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HOW NOW DOW?

Question 8 of 10

Who decides which stocks to add when a member has to go because of merger or failure?

A. A committee of Wall Street Journal editors
B. A group of regulators and industry groups including the Securities and Exchange Commission, Nasdaq, the NYSE, the Chicago Board of Trade and the Federal Reserve Board
C. Companies are put on a waiting list and when one leaves, the replacement is chosen from the top of the list

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Quiz

HOW NOW DOW?

Question 8 of 10

Who decides which stocks to add when a member has to go because of merger or failure?

You're right! A. A committee of Wall Street Journal editors is correct.

Sorry, wrong! is incorrect.

The right answer is A. A committee of Wall Street Journal editors .

Charles Dow, who gave his name both to the publishing company and to a family of stock averages, chose what he thought were the most representative industrial companies when he created the average in 1896. When there are changes today, the Wall Street Journal considers a company's reputation and the importance of its industry to the changing economy and not just the company's size or stock performance.

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HOW NOW DOW?

Question 9 of 10

The "Dow Diamonds" refers to what?

A. An exchange-traded fund that mirrors the Dow
B. A group of the five best-performing stocks of the Dow
C. A group of the Dow members that represent heavy industry

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HOW NOW DOW?

Question 9 of 10

The "Dow Diamonds" refers to what?

You're right! A. An exchange-traded fund that mirrors the Dow is correct.

Sorry, wrong! is incorrect.

The right answer is A. An exchange-traded fund that mirrors the Dow.

Diamonds (DIA) is an ETF that mirrors the 30 companies in the Dow Jones industrial average.

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HOW NOW DOW?

Question 10 of 10

Besides the number of stocks in the average, the Dow differs from the S&P 500 in what key way?

A. All Dow companies count equally, while the 500 S&P companies are weighted by their size
B. The Dow companies are weighted by stock price, while S&P 500 stocks are weighted by total market value
C. The Dow is limited to U.S. companies, while the S&P can have companies from any country

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Quiz

HOW NOW DOW?

Question 10 of 10

Besides the number of stocks in the average, the Dow differs from the S&P 500 in what key way?

You're right! B. The Dow companies are weighted by stock price, while S&P 500 stocks are weighted by total market value is correct.

Sorry, wrong! is incorrect.

The right answer is B. The Dow companies are weighted by stock price, while S&P 500 stocks are weighted by total market value.

The Dow's price-weighted method doesn't make much sense. For instance, a A 1% move in the price of IBM, which closed at $108 on June 9, counts for nearly seven times as much in the Dow as a 1% price change in Intel, which closed at $16, even though IBM's market capitalization of $143 billion is only 55% greater than Intel's market value of $92 billion.

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HOW NOW DOW?

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