Mutual Fund (Ready Made Portfolio) Homework

Enter your information in and submit an Excel spreadsheet for this assignment.

Buying a Stock Portfolio

Required:

1. Create a portfolio containing two shares of each of the stocks in the Dow Jones Industrial Average. You may use the price information gathered for the Stock Assignment earlier this semester. Assume you pay $10 in commissions to your broker for each trade (30 stocks @ $10 = $300 commissions to buy). Create a table using Excel showing: company name, company symbol, price per share, date for the price, commission to buy each share, total cost of each share and the total amount spent to create this portfolio.

Note: Commissions are per trade rather than per share.

2. Because of the way the DJIA is constructed, you are somewhat duplicating the index. I say somewhat because there isnt any adjustment for prior splits or dividends in what you put together.
   1. What type of weighting is used to construct the DJIA price or market value?
   2. Identify the highest price per share stock in the DJIA
   3. Identify the lowest price per share stock in the DJIA
   4. Which of these two stocks will have a greater impact on changes to the value of DJIA when the price of that stock changes?

Buying a Ready Made Portfolio

In this part of the assignment, you should see the advantages of buying a ready-made portfolio rather than purchasing individual stocks

Required:

1. Using information from the first part of this assignment - what is the total spent on purchasing the portfolio made up of two shares each of DJIA component companies plus commissions?
2. DIA is an ETF (Exchange Traded Fund) that replicates the Dow Jones Industrial Average. Assume you have to pay $10 in commission to make a DIA purchase with no limit on the number of shares in the single purchase. Assume you trade through a broker that allows the purchase of fractional shares. Create a table showing:
   1. Symbol, price per share, NAV per share, and date when your data was gathered for DIA.
   2. Assume you invest the same amount of money in the ETF as you would spend constructing the portfolio from question 1, including commissions. How many shares of the ETF can you purchase?
3. Comment on the differences between buying individual securities versus a ready-made portfolio of the same stocks, and include answers to the following questions.
   1. What if you dont have enough money to buy the individual shares of stock in the DJIA?
   2. How would your return be affected by paying commissions for the component stocks instead of the ETF?