Index funds are mutual funds that try to mimic the movement of leading indexes, such as the

Question:

Index funds are that try to mimic the movement of leading indexes, such as the S&P 500 or the Russell 2000. The beta values (as described in Problem 13.49) for these funds are therefore approximately 1.0, and the estimated market models for these funds are approximately
(% weekly change in index fund) = 0.0 + 1.0
(% weekly change in the index)
Leveraged index funds are designed to magnify the movement of major indexes. Direxion Funds is a leading provider of leveraged index and other alternative-class mutual fund products for investment advisors and sophisticated investors. Two of the company's funds are shown in the following table:

Index funds are mutual funds that try to mimic the

The estimated market models for these funds are approximately
(% weekly change in TNA) = 0.0 + 3.0
(% weekly change in the Russell 2000)
(% weekly change in INDL) = 0.0 + 2.
(% weekly change in the Indus India Index)
Thus, if the Russell 2000 Index gains 10% over a period of time, the leveraged mutual fund TNA gains approximately 30%. On the downside, if the same index loses 20%, TNA loses approximately 60%.
a. The objective of the Direxion Funds Large Cap Bull 3x fund, BGU, is 300% of the performance of the Russell 1000 Index. What is its approximate market model?
b. If the Russell 1000 Index gains 10% in a year, what return do you expect BGU to have?
c. If the Russell 1000 Index loses 20% in a year, what return do you expect BGU to have?
d. What type of investors should be attracted to leveraged index funds? What type of investors should stay away from these funds?

Mutual Funds
Mutual funds are like a pool of funds gathered by different small investors that have simalar investment perspective about returns on their investments. These funds are managed by professional investment managers who act smartly on behalf of the...