Currently a stock index stands at 100 and the leverage ETF is selling for $100. The ETF should generate a return that is twice the daily return index. Over the next 21 daysthe value of the index and its daily percentage change are as follows: DayValue of the indexDaily Percentage Change11000.0%211010.0%3100-9.1%49010.0%580-11.1%670-12.5%79028.6%811022.2%913018.2%10100-23.1%111055.0%12101-3.8%1399-2.0%141056.1%1598-6.7%161057.1%1798-6.7%181068.2%191092.8%2012615.6%21100-20.6%22150 What is the value of the ETF at the end of each day? Notice that the end of 21 days, the index is back to its starting value of 100. What is the value of the ETF at the end of 21 days?Suppose that on day 22, the index rises 50 percent from 100 to 150; what is the percentage change in the ETF from day 1 through day 22? If you bought the ETF on day 1 and held itthrough day 22, did you earn the leverage return that you expected?

Current Price of Index is $100 Price of Leveraged ETF is $100 Return of ETF = 2× Return of Index…

Answered: Currently a stock index stands at 100…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Currently a stock index stands at 100 and the leverage ETF is selling for $100. The ETF should generate a return that is twice the daily return index. Over the next 21 days
the value of the index and its daily percentage change are as follows:

Day	Value of the index	Daily Percentage Change
1	100	0.0%
2	110	10.0%
3	100	-9.1%
4	90	10.0%
5	80	-11.1%
6	70	-12.5%
7	90	28.6%
8	110	22.2%
9	130	18.2%
10	100	-23.1%
11	105	5.0%
12	101	-3.8%
13	99	-2.0%
14	105	6.1%
15	98	-6.7%
16	105	7.1%
17	98	-6.7%
18	106	8.2%
19	109	2.8%
20	126	15.6%
21	100	-20.6%
22	150




What is the value of the ETF at the end of each day? Notice that the end of 21 days, the index is back to its starting value of 100. What is the value of the ETF at the end of 21 days?
Suppose that on day 22, the index rises 50 percent from 100 to 150; what is the percentage change in the ETF from day 1 through day 22? If you bought the ETF on day 1 and held it
through day 22, did you earn the leverage return that you expected?