Assignment_1 - Assignment 1 Johnson Graduate School of...

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Assignment 1 Johnson Graduate School of Management Due on September 14, 2010 Professor Mark Zurack Question 1 In the Assignment 1 Spreadsheet under Session 4 in Angel, included are closing prices on Oct. 20, 2009 for all of the stocks in the Dow Jones Industrial Average (DJIA). a) Given the DJIA closed at 10,041.48 on Oct. 20, what was its divisor that day? b) You are an ETF trader and have been asked to price a $1 billion trade on a DJIA ETF (which is commonly referred to as a “DIAMOND”). The DIAMOND ETF closed on Oct. 20 at 1/100 of the value of the DJIA index. Please construct the portfolio you need to trade in order to create $1 billion of ETFs before transactions costs are accounted for. c) You believe that your execution shortfall cost to buy each of the 30 stocks in the DJIA in order to construct the $1 billion portfolio is 10 cents per share. Where should you price the ETF to break even in trading (assume your profit comes in the form of commissions)?
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This note was uploaded on 01/25/2011 for the course NBA 6940 at Cornell University (Engineering School).

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Assignment_1 - Assignment 1 Johnson Graduate School of...

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