A popular value-weighted index is constructed out of shares in the two companies shown in the table, below. On Day 1 you construct a portfolio that mimics the index. In order for your portfolio to earn the same return as the index from Day 2 to Day 3, what portfolio weight do you need for Company 1 on Day 2? $$\begin{array} { | c | c | c | c | c | }
\hline & \text { Company 1 } & \text { Company 1 } & \text { Company 2 } & \text { Company 2 } \
\hline \text { Day } & \text { Price } & \begin{array} { c }
\text { \# of Shares } \
\text { Outstanding }
\end{array} & \text { Price } & \begin{array} { c }
\text { \# of Shares } \
\text { Outstanding }
\end{array} \
\hline 1 & 6.62 & 400 & 10.00 & 1,500 \
\hline \mathbf { 2 } & 7.53 & 400 & 10.54 & 1,500 \
\hline \mathbf { 3 } & 8.82 & 400 & 11.07 & 1,500 \
\hline
\end{array}$$
A)12%
B)13%
C)14%
D)15%
E)16%

Question

A popular value-weighted index is constructed out of shares in the two companies shown in the table, below. On Day 1 you construct a portfolio that mimics the index. In order for your portfolio to earn the same return as the index from Day 2 to Day 3, what portfolio weight do you need for Company 1 on Day 2? $$\begin{array} { | c | c | c | c | c | } 
\hline & \text { Company 1 } & \text { Company 1 } & \text { Company 2 } & \text { Company 2 } \
\hline \text { Day } & \text { Price } & \begin{array} { c } 
\text { \# of Shares } \
\text { Outstanding }
\end{array} & \text { Price } & \begin{array} { c } 
\text { \# of Shares } \
\text { Outstanding }
\end{array} \
\hline 1 & 6.62 & 400 & 10.00 & 1,500 \
\hline \mathbf { 2 } & 7.53 & 400 & 10.54 & 1,500 \
\hline \mathbf { 3 } & 8.82 & 400 & 11.07 & 1,500 \
\hline
\end{array}$$
A)12%
B)13%
C)14%
D)15%
E)16%

Quizplus · Accepted Answer

The Answer of A popular value-weighted index is constructed out of shares in the two companies shown in the table, below. On Day 1 you construct a portfolio that mimics the index. In order for your portfolio to earn the same return as the index from Day 2 to Day 3, what portfolio weight do you need for Company 1 on Day 2? $$\begin{array} { | c | c | c | c | c | } 
\hline & \text { Company 1 } & \text { Company 1 } & \text { Company 2 } & \text { Company 2 } \
\hline \text { Day } & \text { Price } & \begin{array} { c } 
\text { \# of Shares } \
\text { Outstanding }
\end{array} & \text { Price } & \begin{array} { c } 
\text { \# of Shares } \
\text { Outstanding }
\end{array} \
\hline 1 & 6.62 & 400 & 10.00 & 1,500 \
\hline \mathbf { 2 } & 7.53 & 400 & 10.54 & 1,500 \
\hline \mathbf { 3 } & 8.82 & 400 & 11.07 & 1,500 \
\hline
\end{array}$$
A)12%
B)13%
C)14%
D)15%
E)16%

A Popular Value-Weighted Index Is Constructed Out of Shares in the Two