Financial markets

What is the essential purpose for financial markets?

  1. Which is more important, the primary market for stocks or the secondary market? Why?
  2. How does a Ponzi scheme work?
  3. Discuss some of the forces that help make markets efficient?
  4. What are institutional investors? Why are they needed in our economy?
  5. What are some of the differences between a forward contract and a futures contract?

Sample Solution

Financial Markets

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 managerbuys
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 mutual 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.

Sample Solution

Financial Markets

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 managerbuys
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 mutual 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.

Sample Solution