Stock,Bond and Derivative Markets

Stock and Bond Market indexes

Dow Jones Averages 
- Called Price-weighted average,which requires equal numbers of shares of each stock.
- The percentage change in the DJIA measures the return (excluding dividends) on a portfolio that invests one share in each of the 30 stocks in the index.
- the Dow Jones averages are based on small numbers of firms, care must be taken to ensure that they are representative of the broad market.

Standard & Poor’s Indexes
- More broadly based index of 500 firms
- Called Market-value-weighted index,which requires investments in proportion to outstanding value.
- The rate of return of the index equals the rate of return that would be earned by an investor holding a portfolio of all 500 firms in the index in proportion to their market values, except that the index does not reflect cash dividends paid by those firms.

* Index funds yield a return equal to that of the index and so provide a low-cost passive investment strategy for equality investors.

Equally Weighted Indexes
- To reset the portfolio to equal weights, you would need to rebalance by selling and purchasing more or less stocks.

Options
- Call option gives its holder the right to purchase an asset for a specified price, called the exercises or strike price, on or before a specified expiration date.
- Put option gives its holder the right to sell an asset for a specified exercise price on before a specified expiration date.

Futures Contracts
A futures contract calls for delivery of an asset at a specified delivery or maturity date for an agreed-upon price,to be paid at contract maturity.