Invest As Close As You Can Without Going Over 100000

Invest About As Close As You Can Without Going Over 100000 In Th

Invest about – as close as you can without going over – $100,000 in the Dow Jones Industrial Average (DJIA). Assume you can buy the index at a price equal to its value divided by 100. For example, if the index is 23,700, then the price is $237.00. You will buy the index at its value at the opening of the market on the first trading day and sell it at its value at the end of the last trading day.

Using the bottom part of the Portfolio spreadsheet you have already designed, display the number of units of the DJIA purchased, the opening price, the closing price, the total purchase price, and compute your profit (loss) and the ROI.

Paper For Above instruction

The objective of this assignment is to simulate investing approximately $100,000 in the Dow Jones Industrial Average (DJIA), using a method that involves understanding the index’s value, its corresponding share price, and calculating the number of units that can be purchased within the specified budget. Furthermore, the analysis involves computing the total expenditure, profit or loss from the investment, and the return on investment (ROI). This exercise enhances understanding of index-based investment strategies, portfolio management, and performance evaluation.

To initiate the simulation, the first step involves determining the opening and closing values of the DJIA over the selected investment period. Suppose, for instance, that on the first trading day, the DJIA opens at 29,200 points, and on the last trading day, it closes at 28,900 points. The corresponding purchase price per unit of the index is calculated by dividing the DJIA value by 100. This means, at the opening, the price per unit would be:

$29,200 / 100 = $292.00.

Using the total investment amount of $100,000, and the unit price of $292.00, the number of units purchased can be calculated by dividing the total investment by the unit price:

Number of units = $100,000 / $292.00 ≈ 342.47 units.

Since fractional units cannot typically be purchased in real-world trading, the actual number of units purchased would be 342 units, with a slight residual amount of cash remaining uninvested.

Next, we calculate the total purchase price. This is simply the number of units multiplied by the price at the purchase time:

Total purchase price = 342 units × $292.00 = $99,864.00.

The slight remaining cash on hand is approximately $136, which cannot be used to purchase an additional unit because the price per unit exceeds the residual cash.

At the end of the investment period, the index value drops to 28,900 points; thus, the end-of-day unit price is:

$28,900 / 100 = $289.00.

To determine the total sale value of the investment, multiply the number of units held by the closing price:

Total sale price = 342 units × $289.00 = $98,973.00.

Now, calculating the profit or loss involves subtracting the initial purchase value from the final sale value:

Profit (or loss) = $98,973.00 - $99,864.00 = -$891.00.

To find the ROI (Return on Investment), divide the profit (or loss) by the initial investment amount and multiply by 100 to get a percentage:

ROI = (-$891 / $99,864.00) × 100 ≈ -0.89%.

This negative ROI indicates a slight loss in this simulated investment.

The calculations demonstrate how index-based investments fluctuate with market movements and underscore the importance of timing and market analysis in investment performance.

Additionally, the approach emphasizes the utility of index funds or ETFs, where investors can effectively diversify and aim for market returns rather than individual stock picking. The method illustrated here aligns with typical passive investment strategies, offering a practical framework for portfolio management and performance measurement.

References

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