Mutual Funds, Index Funds and ETFs

Exercise 1:

Suppose there are two bonds you are considering:

Bond A Bond B

Maturity (years) 20Y 30Y

Annual Coupon rate (%) 12% 8%

Par Value 1000€ 10000€

a) If both bonds had a required rate of return of 10%, what would the bonds’ prices be?

b) Re-calculate the prices of the bonds if the required return falls to 9%. Could you explain why the price increases or decreases given this change in

required return?

Exercise 2:

Calculate the NAV of the following fund, assuming 35,000 shares are outstanding. Calculate the percentage change in the NAV of the fund on April 29th 2022.

Stock Shares owned price

PYPL 3,000 $ 117.65

TWTR 5,000 $ 50.98

PG 9,000 $ 154.62

NVDA 6,000 $ 259.31

RTX 2,000 $ 98.81

Besides the underlying securities listed above, the fund shows on the Balance Sheet

Cash ______________________________________________ $ 155,000.-

Liabilities ___________________________________________ $ 18,500.-

An investor comes the day after computing the above NAV and invests quarter million USD in the fund. Assume no fees or expenses. The money manager buys

2,000 shares of PayPal and 1,500 of Twitter.

a) Will the NAV increase or decrease? Why?

b) Calculate the return on the investor’s shares. How many did he buy with 250k$?

Question:

Compare carefully Mutual Funds, Index Funds and ETFs. Explain clearly what the benefits and reasons are for investing in a Mutual Fund, Index Fund and ETFs.

Investment companies attempt to explain to investors the nature of the risk the investor incurs when buying shares in their m utual funds and other investment

funds. Scrutinize their products and their risk evaluations. Students present their findings and their return on investment. The aim of this assessment is to

familiarize students with the structure and operation of the main funds, such as Mutual Funds, Index Funds and ETFs, and specifically with the risk-return profile

and preferences of investors.