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ext Monday, scan your work into a PDF file and upload it onto Canvas) 1. Equal-weighted Index and Tracking Portfolio Consider a hypothetical equal-weighted
ext Monday, scan your work into a PDF file and upload it onto Canvas) 1. Equal-weighted Index and Tracking Portfolio Consider a hypothetical equal-weighted index created using the three stocks below: Stock X Price on 3/18/24 $10 Y Z $40 $200 None of the stocks pay dividends. a. Price on 6/18/24 $11 $48 $150 Outstanding Shares (mil) on 3/18/24 Outstanding Shares (mil) on 6/18/24 400 400 100 100 10 10 On 3/18/2024, as a young asset manager, you were asked by a client to create a portfolio to track the said three-stock equal-weighted index. You did exactly as ask and created this tracking portfolio with an initial investment of $12,000. How many shares of each of the three stocks do you need to purchase? b. On 6/18/2024, you conducted a routine review of the portfolio in order to see if it stays equal-weighted after the price changes. Making no changes to the holdings, compute the actual portfolio weights of the three stocks based on the new prices. C. Based on your results from part b), determine whether or not the portfolio needs to be re-balanced so that it can resume equal weights. If you believe rebalancing is necessary, explain how you should adjust the holdings in each of the three stocks in order to resume equal-weights (i.e., find how many share of each of stock should be bought or sold in order to resume equal weights). d. Why this tracking portfolio should be considered a contrarian style investment? Page 1 of 4
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