Problem Set 3

Problem Set 3 - Econ S-1452 Summer, 2010 Problem Set 3 (Due...

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Econ S-1452 Summer, 2010 Problem Set 3 (Due Monday, July 26) 1. Describe the similarities and differences among traditional mutual funds, exchange-traded funds, and hedge funds. Traditional mutual funds exist in two types open end funds and closed end funds. Open end funds issues shares with ever new transaction after 4pm on the days the market is open. The price of the share are the net asset value divided by the total outstanding shares. When the fund grows to large, it opens up a new fund and closes the other one to new investors so that the fund won’t become the market. Close end funds are a onetime offering with a maturity date. The price can fluctuate around the net asset value and the shares are usually issued in a fixed basket of securities. I will refer to open end funds when I write mutual funds from here on. Similarities : Traditional mutual funds and Exchange traded funds (ETFs) are more transparent than Hedge funds. For both Mutual funds and Hedge funds shares are issued by the funds. They all have some restrictions on the redemption on shares, Mutual funds does this at 4pm every business day, ETFs redeem shares in “Creation units”, and Hedge funds has even more restrictions. Differences:
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Problem Set 3 - Econ S-1452 Summer, 2010 Problem Set 3 (Due...

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