Consider a value-weighted market index that includes the two companies shown in the table.You form a portfolio to mimic the index on Day 1.The mimic portfolio is designed to earn the same return as the index.What is the portfolio weight for Company 1?

A) 15%
B) 16%
C) 17%
D) 18%
E) 19%

Question

Consider a value-weighted market index that includes the two companies shown in the table.You form a portfolio to mimic the index on Day 1.The mimic portfolio is designed to earn the same return as the index.What is the portfolio weight for Company 1?

A) 15% 
B) 16% 
C) 17% 
D) 18% 
E) 19%

Quizplus · Accepted Answer

Value of Company 1 on Day 1 = $6.62 × 200 = $1,324 Value of Company 2 on Day 1 = $10 × 750 = $7,500 Total Value on Day 1 = $1,400 + $7,500 = $8,824 w_i = 11ea7fdb_fc07_1837_a768_615c3985e3fc_TB2902_11 Weight of Company 1 = 11ea7fdb_fc07_1838_a768_7b562d1cf88e_TB2902_11 = 0.150 or 15%

Consider a Value-Weighted Market Index That Includes the Two Companies