Question
Triple-leveraged ETFs Underlying unlevered ETF demonstrated the following path over a four day period: Day 0 1 2 3 4 Price 100 110 100 90
Triple-leveraged ETFs
Underlying unlevered ETF demonstrated the following path over a four day period:
Day | 0 | 1 | 2 | 3 | 4 |
Price | 100 | 110 | 100 | 90 | 100 |
Assuming risk-free rate of interest of zero for both lending and borrowing.
a. You are managing a 3X leverage ETF that targets 3 times the daily return of the underlying index. If the starting with a price of 100, what is the daily price?
Day | 0 | 1 | 2 | 3 | 4 |
Price | 100 |
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b. You are managing a 3X leverage ETF that targets 3 times the daily return of the underlying index. If the starting with a price of 100, what is the daily position in the un-levered ETF and cash?
Day | 0 | 1 | 2 | 3 | 4 |
Position in unlevered ETF | 300 |
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Position in cash | -200 |
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c. You are managing a -3X leverage ETF that targets 3 times the opposite daily return of the underlying index. If the starting with a price of 100, what is the daily rebalancing decision in the un-levered ETF and cash?
Day | 0 | 1 | 2 | 3 | 4 |
Position in unlevered ETF | -300 |
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Position in cash | 400 |
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Rebalancing Trade in ETF | NA |
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