Mutual Fund Homework - Buying a Stock Portfolio

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

Required:

1. Create a portfolio containing one share of each of the stocks in the Dow Jones Industrial Average. Assume you have to pay $10 in commissions to your broker for each share of stock (30 stocks @ $10 = $300 in 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 and the total amount spent to create this portfolio.

2. DIA is an ETF that replicates the Dow Jones Industrial Average. Assume you have to pay $10 in transaction costs to make the purchase. Create a table showing:

a. Symbol, price per share and NAV per share, date when your data was gathered.

b. Assume you invest the same amount of money in the ETF as you would spend constructing the portfolio in part 1, including saved 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.

4. Record the price for SPYtwice during the trading day (8:30 to 3 CT) and once after 5 CT for 4 days during the week. Record the NAV for VFINX twice during the trading day (8:30 to 3 CT) and once after 5 CT for 4 days during the week.

a. How often does the price for SPY adjust during the trading day? Is there a different price for SPY after 5 CT?

b. How often does the NAV for VFINX adjust during the trading day? Is there a different price for VFINX after 5CT?

c. What can you conclude from observing SPY and VFINX?