The S&P 500 Bear Plus ETF seeks daily investment results such that its Beta is equal -2.The risk free rate is 3.5% and the market risk premium is 6%.What is the equilibrium expected rate of return on the ETF?

Question

Quizplus · Accepted Answer

Remember that the market risk premium is equal to the expected return on the market less the return on the risk-free asset, or E(k_M) - k_F, and is 6%. E(k_i) = k_F + β_i[E( 11ea7fdb_fc0f_2e07_a768_aba87ad2386f_TB2902_11 ) - k_F] E(k_i) = 0.035 - 2(0.06) E(k_i) = 0.035 - 0.12 E(k_i) = -0.085 or -8.5%

The S&P 500 Bear Plus ETF Seeks Daily Investment Results