Leveraged ETF's .... Assume you have an ETF that gives twice the return of the underlying...

Leveraged ETF's ....

Assume you have an ETF that gives twice the return of the underlying index. The index has returns of -10% on one day and +20% the next.

A. What is the effective daily return on the index over the two day period?

B. What is the effective daily return on your ETF over the same period?

C. Is the effective daily return on the ETF exactly twice the effective daily return on the underlying average?

(If not, explain why the divergence occurs.)

Solutions

Expert Solution

jeff jeffy answered 1 year ago

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