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

question 59

Multiple Choice

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%

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