A consumer price index (CPI) measures changes in the price level of consumer goods and services purchased by households.

The CPI, in the United States is defined by the Bureau of Labor Statistics as "a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services."[1] The CPI is a statistical estimate constructed using the prices of a sample of representative items whose prices are collected periodically. Sub-indexes and sub-sub-indexes are computed for different categories and sub-categories of goods and services, being combined to produce the overall index with weights reflecting their shares in the total of the consumer expenditures covered by the index. It is one of several price indices calculated by most national statistical agencies. The annual percentage change in a CPI is used as a measure of inflation. A CPI can be used to index (i.e., adjust for the effect of inflation) the real value of wages, salaries, pensions, for regulating prices and for deflating monetary magnitudes to show changes in real values. In most countries, the CPI is, along with the population census and the USA National Income and Product Accounts, one of the most closely watched national economic statistics. What Does Standard & Poor's 500 Index - S&P 500 Mean? An index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe. Companies included in the index are selected by the S&P Index Committee, a team of analysts and economists at Standard & Poor's. The S&P 500 is a market value weighted index - each stock's weight is proportionate to its market value.

Investopedia explains Standard & Poor's 500 Index - S&P 500 The S&P 500 is one of the most commonly used benchmarks for the overall U.S. stock market. The Dow Jones Industrial Average (DJIA) was at one time the most renowned index for U.S. stocks, but because the DJIA contains only 30 companies, most people agree that the S&P 500 is a better representation of the U.S. market. In fact, many consider it to be the definition of the market. Other popular Standard & Poor's indexes include the S&P 600, an index of small cap companies with market capitalizations between $300 million and $2 billion, and the S&P 400, an index of mid cap companies with market capitalizations of $2 billion to $10 billion. A number of financial products based on the S&P 500 are available to investors. These include index funds and exchange-traded funds. However, it would be difficult for individual investors to buy the index, as this would entail buying 500 different stocks. Filed Under: Acronyms, Index Fund, Investing Basics, Stocks Related Terms

Blue Chip Dow Jones Industrial Average - DJIA Enhanced Index Funds - EIFS Exchange-Traded Fund -

Read more: http://www.investopedia.com/terms/s/sp500.asp#ixzz1f0b7tcWZ e S&P 500 is a stock market index containing the stocks of 500 American Large-Cap corporations. The index is owned and maintained by Standard & Poor's, a division of McGraw-Hill. All of the stocks in the index trade on the two largest US stock markets, the New York Stock Exchange and Nasdaq. The Dow Jones Industrial Average and the S&P 500 are the most widely watched indexes of large-cap US stocks. The S&P 500 is often quoted using the symbol SPX or INX, and may be prefixed with a caret (^) or with a dollar sign ($). Many index funds and exchange-traded funds track the performance of the S&P 500 by holding the same stocks as the index, in the same proportions, and thus attempt to match its performance (before fees and expenses). Partly because of this, a company which has its stock added to the list may see a boost in its stock price as the managers of the mutual funds must purchase that company's stock in order to match the funds' composition to that of the S&P 500 index. Additionally, the S&P 500 index is often used as a baseline level of performance against which mutual funds and other asset managers' performance is measured.

Composition of the S&P 500 Index

S&P 500 sector break-down[1] The S&P 500 index is not made up of the 500 largest corporations in the U.S., since other factors such as liquidity of the stock and industry grouping are also considered in selecting members for the index.

Contents

1 Composition of the S&P 500 Index 2 S&P 500 Index Calculation o 2.1 Impact of constituent's share price change o 2.2 Index Maintenance 3 Investing in the S&P 500 Index 4 Historical S&P Performance 5 References

The criteria for being added to the index are as follows:

Must be a "U.S. company". This is determined by looking at location of company's operations, its corporate structure, its accounting structure and its exchange listing. Must have minimum $5 billion market capitalization. The minimum is reviewed occasionally to ensure that it takes in to account market conditions. Must have a minimum public float of 50%, which means that at least half of the company's share must be publicly tradable. Must be financially viable. Companies are expected to have at least four consecutive quarters of positive as-reported earnings Must be operating companies. Closed-end funds, holding companies, partnerships, investment vehicles and royalty trusts are not eligible while Real Estate Investment Trusts (REITs) and business development companies (BDCs) are eligible for inclusion to the index. Should have adequate liquidity and moderate price per share. The ratio of annual dollar value traded to market capitalization for the company should be 0.30 or greater. Very low or extremely high priced shares are also considered to be illiquid. The index must remain reflective of the various sectors in the U.S. economy. This signifies that even if a company has all the qualifying characteristics, it may not be selected if the sector it operates in is already accounted for in the index.

It should be noted that these criteria are applicable to companies that are being added to the S&P 500. Since the index committee attempts to minimize unnecessary turnover in index membership, existing companies do not have to diligently maintain these conditions to remain in the index. However, companies that substantially violate one or more of these criteria are removed from the index and replaced by a new company. As a result, on a yeaThe Standard & Poor's 500 Index is calculated using a base-weighted

aggregate methodology; that means the level of the Index reflects the total market capitalization of all 500 component stocks relative to a particular base period. The S&P 500's base period is 1941-43. The actual total market value of the stocks in the Index during the base period has been set equal to an indexed value of 10. This is often indicated by the notation 1941-43=10. <SCRIPT language='JavaScript1.1' SRC="http://ad.doubleclick.net/adj/N2992.149951.WIKINVEST/B5588372.2;click0=htt p://www.nvadn.com/track/ck? oaparams=2__bannerid=604__zoneid=17__cb=d469ea93d0__oadest=;abr=! ie;sz=300x250;ord=1322488999.6338?"> </SCRIPT> <NOSCRIPT> <a href="http://www.nvadn.com/track/ck? oaparams=2__bannerid=604__zoneid=17__cb=d469ea93d0__oadest=http%3A%2F %2Fad.doubleclick.net%2Fjump%2FN2992.149951.WIKINVEST %2FB5588372.2%3Babr%3D%21ie4%3Babr%3D%21ie5%3Bsz%3D300x250%3Bord %3D1322488999.6338%3F" target="_blank"> <IMG SRC="http://ad.doubleclick.net/ad/N2992.149951.WIKINVEST/B5588372.2;abr=! ie4;abr=!ie5;sz=300x250;ord=1322488999.6338?" BORDER=0 WIDTH=300 HEIGHT=250 ALT="Advertisement"></A> </NOSCRIPT> In practice, the daily calculation of the Standard & Poor's 500 Index is computed by dividing the total market value of the 500 companies in the Index by a number called the Index Divisor. By itself, the Divisor is an arbitrary number. However, in the context of the calculation of the S&P 500 Index, it is the only link to the original base period value of the Index. The Divisor keeps the Index comparable over time and is the manipulation point for all Index Maintenance adjustments.[3] In 2005, the Index was changed to be "float" weighted, i.e. the index weighting is determined by the amount of shares available for public trading. It works exactly the same way as the market-cap weighting, only that instead of making each component proportional to their respective market capitalization, they are made to be proportional to their public float. When Google was included in the index in March 2006, only its Class A shares, which are publicly traded, were used to determine Google's weight in the index. Only a minority of companies in the index have this sort of public float lower than their total capitalization; for most companies in the index S&P considers all shares to be part of the public float and thus the capitalization used in the index calculation equals the market capitalization for those companies.[4]

Impact of constituent's share price change

Being a market-value weighted index, changes in price for companies with higher market capitalization has a proportionally larger impact on the index. For example: In June 2008, Exxon Mobil's weight in the S&P 500 Index was roughly 4.2%. If Exxon Mobil's market capitalization increased by 10%, it would cause the S&P 500 to rise by r-to-year basis, the composition of t