Question

At the market opening, a customer purchases 200 shares of an S&P 500 Inverse ETF (-1x) at $50 per share. At the end of that day, the S&P 500 Index declines by 10%. The next day, the index partially recovers and closes up 5%. What is the market value of the 200 shares position?

A. $9,450
B. $9,500
C. $10,450
D. $10,500

Answer 1

Answer:

C. $10,450

Explanation:

The computation is shown below:

Since the 200 shares are purchased for $50 per share. So, the share value is $10,000. And, in the question it shows an inverse relationship that means if the index declines by 10% the position would rise by 10% . So, the share value would be

= $10,000 + $10,000 × 10%

= $10,000 + $1,000

= $11,000

Now the index recovered by 5%

that means the ETF reduced by 5%

So,

= $11,000 × 95%

= $10,450