Index funds are mutual funds 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:

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?