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?
Company 1 Company 1 Company 2 Company 2
Day Price # of Shares Outstanding Price # of Shares Outstanding
1 6.62 400 10.00 1,500
2 7.53 400 10.54 1,500
3 8.82 400 11.07 1,500
A) 12%
B) 13%
C) 14%
D) 15%
E) 16%
E
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