Which of the following statements is NOT true about the Dow Jones Industrial Average (DJIA)?

• A. The DJIA is composed of 30 large publicly traded companies.
• B. The DJIA includes companies from various sectors except for transportation and utilities.
• C. The DJIA is a price-weighted stock market index.
• D. The DJIA is calculated using the market capitalization of its component companies.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand what the Dow Jones Industrial Average (DJIA) represents. It is a stock market index that tracks 30 large, publicly traded companies in the United States.
2. Step 2: Recognize that the DJIA includes companies from various sectors, including transportation and utilities, so any statement excluding these sectors is likely incorrect.
3. Step 3: Know the method of calculation for the DJIA. It is a price-weighted index, meaning that companies with higher stock prices have more influence on the index's movement, rather than being weighted by market capitalization.
4. Step 4: Compare the given statements to these facts. The statement claiming the DJIA is calculated using market capitalization is incorrect because the DJIA uses price weighting, not market cap weighting.
5. Step 5: Conclude that the statement 'The DJIA is calculated using the market capitalization of its component companies' is NOT true about the DJIA.