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Homework answers / question archive / Inverse mutual funds, sometimes referred to as "bear market" or "short" funds, seek to deliver the opposite of the performance of the index or category they track, and can thus be used by traders to bet against the stock market
Inverse mutual funds, sometimes referred to as "bear market" or "short" funds, seek to deliver the opposite of the performance of the index or category they track, and can thus be used by traders to bet against the stock market. This question is based on the following table, which shows the performance of three such funds as of August 12, 2011. Year-to-date Loss SHPIX (Short Smallcap Profund) 6% RYURX (Rydex Inverse S&P 500) 5% RYIHX (Rydex Inverse High Yield) 7% You invested a total of $12,000 in the three funds at the beginning of 2011, including an equal amount in SHPIX and RYURX. Your total year-to-date loss amounted to $720. How much did you invest in each of the three funds?
Given that loss is 720 for an invested amount of 12000.
So, percentage of loss= 720/12000= 6%.
Let w be the weights invested in SHPIX and RYURX. Then 1-2w is the weight invested in RYIHX.
Loss on the portfolio is weighted average of individual Losses.
So, -6%= (w*-6%)+(w*-5%)+((1-2w)*-7%)
-6%= w*3%-7%
w= 1/3 and 1-2w= 1/3.
So, the portfolio was distributed evenly among the three stocks.
So, Amount invested in
SHPIX= $4000
RYURX= $4000
RYIHX= 4000
