Consider a Value-Weighted Market Index That Includes the Two Companies

question 79

Multiple Choice

Consider a value-weighted market index that includes the two companies shown in the table. You form a portfolio to mimic the index on Day 1. The mimic portfolio is designed to earn the same return as the index. What is the portfolio weight for Company 1? $$\begin{array} { | c | c | c | c | c | } \hline & \text { Company 1 } & \text { Company 1 } & \text { Company 2 } & \text { Company 2 } \\\hline \text { Day } & \text { Price } & \text { \# of Shares } & \text { Price } & \text { \# of Shares } \\\hline 1 & \$ 6.62 & 200 & \$ 10.00 & 750 \\\hline \mathbf { 2 } & \$ 7.24 & 200 & \$ 10.54 & 750 \\\hline\end{array}$$

• A)15%
• B)16%
• C)17%
• D)18%
• E)19%

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Definitions:

Accounts Receivable

Monies owed to a company by customers for sales made on credit that are recorded as assets on the balance sheet.

General Journal

A foundational accounting record that keeps chronological entries of a company's transactions.

T-Accounts

A visual representation used in accounting to depict the debits and credits for each financial transaction affecting a particular account.

T-Accounts

T-Accounts are a form of accounting ledger that visually represents the debits and credits of financial transactions for each account in double-entry bookkeeping.