Final answer:
The computation of the Dow Jones Industrial Average is based on a price-weighted average of 30 industrial stocks, whereas the S&P 500 Index is a market capitalization-weighted index of 500 large companies. The Value Line Index uses an equal-weighted method. These different methodologies result in varied representations of the market's performance.
Step-by-step explanation:
The computation of the Dow Jones Industrial Average (DJIA) differs significantly from the S&P 500 Index and other market indices like the Value Line Index. The DJIA is a price-weighted average, which means that it calculates the average based on the price of each of the 30 industrial stocks included in the index. Stocks with higher prices have more influence on the index's movement.
In contrast, the S&P 500 Index is a market capitalization-weighted index, which means that it takes into account the market value of the outstanding shares of the companies included. Therefore, larger companies make up a bigger portion of the index's movements. Similarly, the Value Line Index utilizes an equally-weighted approach, reflecting the average performance of the constituent stocks regardless of their size.
Overall, while both the DJIA and S&P 500 tend to move together as they reflect the broader stock market's trends, the methodology behind each index's calculation leads to different representations of the market. The DJIA might be more affected by high-priced stocks, while the S&P 500 gives more weight to larger companies in terms of their market capitalization.