Posted: June 29th, 2022

BCO224 · Financial Markets · Task brief & rubrics

BCO224 · Financial Markets · Task brief & rubrics

Task

This task is individual and consists of 2 exercises and 1 question on Debt instrument market prices and yields and the mutual fund industry (NAV and important

concepts)

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 Assessments. 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.

Formalities:

• Wordcount: no requirement for the exercises other than displaying details on the computations. For the question 500 – 800 words.

• Cover, Table of Contents, References and Appendix are excluded of the total wordcount.

• Font: Arial 12,5 pts.

• Text alignment: Justified.

• The in-text References and the Bibliography have to be in Harvard’s citation style.

Submission: Week 12, Sunday May, 1st at 23.59 – Via Moodle (Turnitin).

Weight: This task is a 40% of your total grade for this subject. It assesses the following learning outcomes:

• Outcome 1: Understand and apply the yield/price relationship and mechanism for debt instruments.

• Outcome 2: Perform computations on the NAV and understand and apply the differences between NBV, NAV and market price and their consequences

for both the incumbent and the investor.

• Outcome 3: Understand the mutual fund industry with all their benefits and challenges for ethical and compliant functioning.

Rubrics

Descriptor

9-10 The student demonstrates an excellent understanding of the concepts.

8-8.9 The student demonstrates a good understanding of the concepts.

7-7.9 The student demonstrates a fair understanding of the concepts. 6-6.9 The student demonstrates some, but insufficient understanding of the

concepts.

3-5.9 The student demonstrates insufficient understanding of the concepts. They may mention some relevant ideas or concepts, although the relationship between them is not understood by the student.

1-2.9 The student demonstrates insufficient understanding of the concepts and does not mention any relevant ideas or concepts.

0 The student leaves the question blank or che ats.

Points are stated at the end of each question.

—–

Task brief and rubrics for BCO224 Financial Markets

Task

This is an individual task that comprises of two exercises and one question about debt instrument market pricing and yields, as well as the mutual fund business (NAV and essential terms).

concepts)

1st Exercise:

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

Order | Check Discount

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