Problem l: Calculating Returns l21 points The SPDR S&P Biotech ETF's investment objective is to produce returns that match those of the S&P Biotechnology Select Industry Index. There also exist leverage and inverse leveraged ETFs having investment objectives that are multiples of that index. Specifically, these are the Direxion Daily S&P Biotech Bu3x shares (ticker LABU) that aims to return +3 times the daily index return and the Daily S&P Biotech Bear 3x Shares (ticker LABD) that aims to return -3 times the daily index return. The spreadsheet data PS 2_Fal12018.xlsx accompanies this problem set. There you will find daily prices and distribution amounts for thesc 3 ETFs. Use that data to answer the following questions. A. [4 points] Use the daily prices and distributions to compute the daily returns to each ETF for the time period July 1 2016 to June 30 2018. Note, the dividends appear on the ex-date, so the seller of the stock receives the dividend, not the buyer B. 3 points] Compute the arithmetic average daily returns to each of the funds. C. [3 points] Compute the geometric avcrage daily returns to cach of the funds. D. 2 points] Why does the geometric average return differ from the arithmetic average? To what is that difference proportional? [3 points] Compute the holding pcriod return (across the full holding period) for cach of the funds. E. F. [6 points] Assume that on June 30, 2016, you invested $100,000 in equal amounts of LABU and LABD (i.e. use S50,000 to buy LABU shares at the 06 30/2016 closing price, and S50,000 to do the same with LABD). i. What would that portfolio be worth at the end of Junc 30, 2018? ii. What would be the weights of LABU and LABD in the portfolio as of June 30, 2018? iii. One might think since LABU and LABD return +3 and -3 times the daily returns to the same index that the portfolio return would be 0%. Why is this not the case? Problem l: Calculating Returns l21 points The SPDR S&P Biotech ETF's investment objective is to produce returns that match those of the S&P Biotechnology Select Industry Index. There also exist leverage and inverse leveraged ETFs having investment objectives that are multiples of that index. Specifically, these are the Direxion Daily S&P Biotech Bu3x shares (ticker LABU) that aims to return +3 times the daily index return and the Daily S&P Biotech Bear 3x Shares (ticker LABD) that aims to return -3 times the daily index return. The spreadsheet data PS 2_Fal12018.xlsx accompanies this problem set. There you will find daily prices and distribution amounts for thesc 3 ETFs. Use that data to answer the following questions. A. [4 points] Use the daily prices and distributions to compute the daily returns to each ETF for the time period July 1 2016 to June 30 2018. Note, the dividends appear on the ex-date, so the seller of the stock receives the dividend, not the buyer B. 3 points] Compute the arithmetic average daily returns to each of the funds. C. [3 points] Compute the geometric avcrage daily returns to cach of the funds. D. 2 points] Why does the geometric average return differ from the arithmetic average? To what is that difference proportional? [3 points] Compute the holding pcriod return (across the full holding period) for cach of the funds. E. F. [6 points] Assume that on June 30, 2016, you invested $100,000 in equal amounts of LABU and LABD (i.e. use S50,000 to buy LABU shares at the 06 30/2016 closing price, and S50,000 to do the same with LABD). i. What would that portfolio be worth at the end of Junc 30, 2018? ii. What would be the weights of LABU and LABD in the portfolio as of June 30, 2018? iii. One might think since LABU and LABD return +3 and -3 times the daily returns to the same index that the portfolio return would be 0%. Why is this not the case
