Question: 10. This assignment question is based on the illustration example in the text/lecture: a $10 million portfolio invested in four stock indices: the DJIA, the

10. This assignment question is based on the illustration example in the text/lecture: a $10 million portfolio invested in four stock indices: the DJIA, the FTSE 100, the CAC 40, and Nikkei 225. It intends to lead you to work through the process of calculation and estimation.

Today is still Sept. 25, 2008. You are asked to complete the calculation of two scenarios for Sept. 26, 2008, based on the following data from August 21 through August 23, 2006.

Exch Rate Adjusted Exch Rate Adjusted Exch RateAdjusted

DJIA FTSE-100 USD/GBP FTSE CAC-40 EUR/USD CAC-40 Nikkei YEN/USD Nikkei

8/21/2006 11345.04 5915.2 1.897 ? 5104.65 0.7741 ? 15969.04 115.86 ?

8/22/2006 11339.84 5902.6 1.8885 ? 5128.33 0.7804 ? 16181.17 116.46 ?

8/23/2006 11297.9 5860 1.8937 ? 5082.73 0.7816 ? 16163.03 116.53 ?

First, please calculate the US dollar equivalent (adjusted indices) for three foreign indices on those three days, based on the original indices and foreign exchange rates.

Second, please calculate the 11th scenario based on the daily changes between 8/21 and 8/22, and the 12th scenario based on the daily changes between 8/22 and 8/23.

In each scenario, you need to calculate the levels of four simulated stock indices for Sept. 26, 2008, using the base levels of the four indices on 9/25/2008 (DJIA=11,022.06, FTSE=9,599.90, CAC=6,200.40, Nikkei=112.82).

You then calculate the portfolio value and its gain or loss in each scenario.

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