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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Definitions:

Compensation Costs

Expenses related to paying employees, including wages, salaries, bonuses, benefits, and any other form of remuneration.

Technological Changes

Refers to the advancements and innovations in technology that impact how activities are performed in various domains.

Delphi Meeting

A structured communication technique, often used in forecasting or decision making, involving a panel of experts who answer questionnaires in multiple rounds.

Composite Forecast

An estimation method that combines several individual forecasts to produce a more accurate overall forecast.