Chapter 4 :

Exercise 9:
The composition of the Fin group Fund portfolio is as in Table 1. The has not borrowed
any funds, but its accrued management fee with the portfolio manager currently totals
$30,000. There are 4 million shares outstanding. What is the net asset value of the
fund?
Answer: Total asset value is
200, 000 35 + 300, 000 40 + 400, 000 20 + 600, 000 25 = $42, 000, 000 .
Hence net asset value is given by
NAV = 42, 000, 000 30, 000
4, 000, 000
= $10.49 .

Exercise 20: NAV = "Market value of assets Market value of liabilities" /"Shares
outstanding"

= "$450,000,000 $10,000,000" /"44,000,000" = $10

Portfolio value = $450million - ($10 1million) = $440million

The number of shares outstanding will be the current shares outstanding minus the number of
shares redeemed: 44million - 1million = 43million.

Thus, net asset value after the redemption will be:

NAV = "Market value of assets Market value of liabilities" /"Shares outstanding"

= "$440,000,000 $10,000,000" /"43,000,000" = $10

Chapter 5 :
1- Money Market Fund: Money Market funds are for short duration and offers minimum
interest rate risk as return on money funds are not affected by changes in interest rate.So, the
investor can invest 5000 in the money market fund now and when the interest rate increases the
funds can be re-invested in assets paying higher interest rates.
One year savings deposit: it provides investors with relatively less changes in interest rates. The
alternative falls in the middle in terms of risk and return trade-off. It offers higher return
compared to money market fund but less degree of interest rate risk compared to 20-year U.S.
Treasury bonds due to shorter maturity.
20-year US. Treasury Bonds: It has the highest interest rate risk among all the three alternatives
as it has the longest years to maturity. An investor who forecasts the interest rates to fall in long
run will invest in 20-year U.S Treasury Bond as it will provide higher return in long run.
Exercise 6:
a- As we all know : Real Rate= Nominal Rate Inflation Rate
The Inflation Plus option provides a certain 1.5% return a;though
4) Advantages of an ETF over a mutual fund:
ETFs are continuously traded during the day and can be sold or purchased on margin
Tax efficiency: no forced liquidation of fund holdings when existing investors cash out
Lower management and distribution fees
Disadvantages of an ETF over a mutual fund:
Prices can depart from NAV (unlike an open-end fund)
5)
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incurred when buying and selling (unlike a no-load fund)
Ch. 6
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