 Financial Terms Dow Jones Industrial Average

# Definition of Dow Jones Industrial Average ## Dow Jones Industrial Average

Index of the investment performance of a portfolio of 30 “blue-chip” stocks.

## Dow Jones industrial average

This is the best known U.S.index of stocks. It contains 30 stocks that trade on
the New York Stock Exchange. The dow, as it is called, is a barometer of how shares of the largest
U.S.companies are performing. There are thousands of investment indexes around the world for stocks,
bonds, currencies and commodities.

# Related Terms:

## Average

An arithmetic mean of selected stocks intended to represent the behavior of the market or some
component of it. One good example is the widely quoted dow jones industrial average, which adds the
current prices of the 30 DJIA's stocks, and divides the results by a predetermined number, the divisor.

## Arithmetic average (mean) rate of return

Arithmetic mean return.

## Average accounting return

The average project earnings after taxes and depreciation divided by the average
book value of the investment during its life.

## Average (across-day) measures

An estimation of price that uses the average or representative price of a

## Average age of accounts receivable

The weighted-average age of all of the firm's outstanding invoices.

## Average Amortization Period

The average useful life of a company's collective amortizable asset base. ## Average Collection Period

average number of days necessary to receive cash for the sale of
a company's products. It is calculated by dividing the value of the
accounts receivable by the average daily sales for the period.

## Average collection period, or days' receivables

The ratio of accounts receivables to sales, or the total
amount of credit extended per dollar of daily sales (average AR/sales * 365).

## Average-Cost Inventory Method

The inventory cost-flow assumption that assigns the average
cost of beginning inventory and inventory purchases during a period to cost of goods sold and
ending inventory.

## Average cost of capital

A firm's required payout to the bondholders and to the stockholders expressed as a
percentage of capital contributed to the firm. average cost of capital is computed by dividing the total
required cost of capital by the total amount of contributed capital.

## Average inventory

The beginning inventory for a period, plus the amount at the end of
the period, divided by two. It is most commonly used in situations in which just
using the period-end inventory yields highly variable results, due to constant and
large changes in the inventory level.

## Average life

Also referred to as the weighted-average life (WAL). The average number of years that each
dollar of unpaid principal due on the mortgage remains outstanding. average life is computed as the weighted average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal
paydowns.

## Average maturity

The average time to maturity of securities held by a mutual fund. Changes in interest rates
have greater impact on funds with longer average life.

## Average Propensity to Consume

Ratio of consumption to disposable income. See also marginal propensity to consume.

## Average Propensity to Save

Ratio of saving to disposable income. See also marginal propensity to save. ## Average rate of return (ARR)

The ratio of the average cash inflow to the amount invested.

## Average tax rate

Taxes as a fraction of income; total taxes divided by total taxable income.

## average tax rate

Total taxes owed divided by total income.

A mortgage loan on newly developed property that the builder subsidizes during the
early years of the development. The builder uses cash to buy down the mortgage rate to a lower level than the
prevailing market loan rate for some period of time. The typical buydown is 3% of the interest-rate amount
for the first year, 2% for the second year, and 1% for the third year (also referred to as a 3-2-1 buydown).

Mortgages in which monthly payments consist of principal and interest, with portions of these
payments during the early period of the loan being provided by a third party to reduce the borrower's monthly
payments.

## Cramdown

The ability of the bankruptcy court to confirm a plan of reorganization over the objections of
some classes of creditors.

## Discount window

Facility provided by the Fed enabling member banks to borrow reserves against collateral
in the form of governments or other acceptable paper.

## Discount Window

The Federal Reserve facility at which reserves are loaned to banks at the discount rate.

## Down-and-in option

Barrier option that comes into existence if asset price hits a barrier.

## Down-and-out option

Barrier option that expires if asset price hits a barrier.

A classic negative change in ratings for a stock, and or other rated security. ## downsizing

any management action that reduces employment
upon restructuring operations in response to competitive
pressures

## Endowment

Life insurance payable to the policyholder, if living on the maturity date stated in the policy, or to a beneficiary if the insured dies before that date. For example, some Term to age 100 policies offer the option of taking the face amount of the policy as a cash payout at age 100 if the policyholder is still alive and paying all required income taxes on the amount received or leaving the policy to pay out upon death whereupon the payout is tax free.

## Endowment funds

Investment funds established for the support of institutions such as colleges, private
schools, museums, hospitals, and foundations. The investment income may be used for the operation of the
institution and for capital expenditures.

## Industrial revenue bond (IRB)

Bond issued by local government agencies on behalf of corporations.

## inventory write-down

Refers to making an entry, usually at the close of a
period, to decrease the cost value of the inventories asset account in
order to recognize the lost value of products that cannot be sold at their
normal markups or will be sold below cost. A business compares the
recorded cost of products held in inventory against the sales value of the
products. Based on the lower-of-cost-or-market rule, an entry is made to
record the inventory write-down as an expense.

## Moving average

Used in charts and technical analysis, the average of security or commodity prices
constructed in a period as short as a few days or as Long as several years and showing trends for the latest
interval. As each new variable is included in calculating the average, the last variable of the series is deleted.

## Moving average

parametrically determined prices over some time period.

## Moving average inventory method

An inventory costing methodology that calls for the re-calculation of the average cost of all parts in stock after every purchase.
Therefore, the moving average is the cost of all units subsequent to the latest purchase,
divided by their total cost.

## Moving-averages chart

A financial chart that plots leading and lagging
moving averages for prices or values of an asset.

## Paydown

In a Treasury refunding, the amount by which the par value of the securities maturing exceeds that
of those sold.

## Simple moving average

The mean, calculated at any time over a past period of fixed length.

## Top-down equity management style

A management style that begins with an assessment of the overall
economic environment and makes a general asset allocation decision regarding various sectors of the financial
markets and various industries. The bottom-up manager, in contrast, selects the specific securities within the
favored sectors.

## WEIGHTED AVERAGE

An inventory valuation method that calculates a weighted average cost per unit for all the goods available for sale.
Multiplying that figure by the total units in ending inventory gives you the inventory’s value.

## Weighted average

A method of accounting for inventory.

## Weighted average cost of capital

Expected return on a portfolio of all the firm's securities. Used as a hurdle
rate for capital investment.

## Weighted average cost of capital

See cost of capital.

## weighted-average cost of capital

Weighted means that the proportions of
debt capital and equity capital of a business are used to calculate its
average cost of capital. This key benchmark rate depends on the interest
rate(s) on its debt and the ROE goal established by a business. This is a
return-on-capital rate and can be applied either on a before-tax basis or
an after-tax basis. A business should earn at least its weighted-average
rate on the capital invested in its assets. The weighted-average cost-ofcapital
rate is used as the discount rate to calculate the present value
(PV) of specific investments.

## weighted average cost of capital

a composite of the cost of the various sources of funds that comprise a firm’s capital structure; the minimum rate of return that must be earned on new investments so as not to dilute shareholder value

## Weighted Average Cost of Capital (WACC)

The weighted average of the costs of the capital components
(debt, preferred stock, and common stock)

## weighted-average cost of capital (WACC)

Expected rate of return on a portfolio of all the firm’s securities, adjusted for tax savings due to interest payments.

## Weighted Average Cost of Capital (WACC)

A weighted average of the component costs of debt, preferred shares, and common equity. Also called the composite cost of capital.

## Weighted average coupon

The weighted average of the gross interest rate of the mortgages underlying the
pool as of the pool issue date, with the balance of each mortgage used as the weighting factor.

## Weighted average life

See:average life.

## Weighted average maturity

The WAM of a MBS is the weighted average of the remaining terms to maturity
of the mortgages underlying the collateral pool at the date of issue, using as the weighting factor the balance
of each of the mortgages as of the issue date.

## weighted average method (of process costing)

the method of cost assignment that computes an average cost per
equivalent unit of production for all units completed during
the current period; it combines beginning inventory units
and costs with current production and costs, respectively,
to compute the average

## Weighted average portfolio yield

The weighted average of the yield of all the bonds in a portfolio.

## Weighted average remaining maturity

The average remaining term of the mortgages underlying a MBS.

## Window contract

A guaranteed investment contract purchased with deposits over some future designated
time period (the "window"), usually between 3 and 12 months. All deposits made are guaranteed the same
credit rating.
Related: bullet contract.

## Write-down

Decreasing the book value of an asset if its book value is overstated compared to current market values.

## Write-Down

A reduction in the balance-sheet valuation of an asset with an accompanying
expense or loss recorded in earnings.