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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

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

Position in cash

-200

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

Position in cash

400

Rebalancing Trade in ETF

NA

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