Just Divide by 0.14748071991788

Q The Dow was recently at 25,600. What, exactly, does that number represent? — M.M., Decatur, Illinois

A “The Dow” refers to the Dow Jones Industrial Average (DJIA), a U.S. stock market index established in 1896. It’s an average of the stock prices of 30 companies that include Apple, Boeing, CocaCola, The Home Depot, McDonald’s, Nike, Procter & Gamble, Walmart and Visa. It doesn’t look like an average, though, when it’s 25,600 and many of the stocks sport prices below $100. It makes sense, though, because the shares, on average, actually would trade at lofty levels — if they had never been split, issued dividends or undergone major changes such as spin-offs or mergers during their time in the index. Therefore, in order to account for all those changes, the stock prices of the 30 component stocks are added together and then divided by the “divisor” (which is adjusted frequently and was recently 0.14748071991788). To understand how each stock affects the average, know that if, say, Visa stock rises by $10, you can just divide 10 by the divisor and learn that the DJIA will rise by about 67.81 points (10 divided by 0.14748071991788 equals 67.805).

Q What are “orphan drugs” in the pharmaceutical world? — T.B., Hattiesburg, Mississippi

A The U.S. Food & Drug Administration has an Orphan Drug Designation program, offering incentives for companies to develop drugs to treat, diagnose or prevent “rare diseases/disorders that affect fewer than 200,000 people in the U.S., or that affect more than 200,000 persons but are not expected to recover the costs of developing and marketing a treatment drug.” Since many of these drugs end up with steep prices, they can make a lot of money for biotech and pharmaceutical companies.

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