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Assignment 1 it is worth
- 1. Assignment 1 it is worth 10 percent on overall grade please submit the assignment on time if assignment late submit 3 percent will deducted from the assignment grade. 1. Below is the date on Netherland’s GDP extracted from Eurostat, the European Union’s statistical office, for the period 2007 – 2019, Real GDP is calculated with a fixed Wight method and 2007 as the base year. Fill the table by calculating % Change Nominal GDP in Price Real GDP GDP deflator
- 2. Level 2005 2.297,82 2.297,82 2006 2.383,07 2.390,20 2007 2.460,99 2.510,11 2008 2.486,88 2.558,02 2009 2.346,67 2.456.66 2010 2.442,67 2.576,22 2011 2.530,36 2.699,10 2012 2.539,89 2.749,90 2013 2.542,58 2.809,48 2014 2.583,37 2.903,79 A- The GDP deflator for each year. B - The change in price level, in percentage terms. 2. Define the following: A. Sticky Prices: B. Business Cycle: C. GDP: D. GNP: E. Durable Goods: F. The labor force:
- 3. G. The consumer price index: H. The unemployment rate: I. Producer price indexes: J. Output growth: 1-4. Dana makescustom bird houses in her garage and she buys all her supplies from a local lumber yard. Last year she purchased $3.500 worth of supplies and produced 250 bird houses. She sold all 250 bird houses to local craft store for $25 each. The craft store sold all the bird houses to the customers for $55 each. For the total bird house production. Calculate the value added of Dana and the craft store?
- 4. 5. porta Island is small nation with a simple economy that produces only six goods: Sugar cane, Yo – yos, Run, Peanuts, Harmonicas and Peanut butter. Assume that one quarter of all the sugar can is used to produce run and one half of all peanuts are to produce Peanut butter. A – Use the production and price information in the table to calculate nominal GDP for 2019? b- Use the production and price information in the table to calculate real GDP from 2017, 2018, and 2019 using 2019 as base year. What is the growth rate of real GDP from 2017 to 2018 and from 2018 to 2019? C - Use the production and price information in the table to calculate GDP for 2017, 2018, and 2019 using 2018 as the base year. What is the growth rate of GDP from 2017 to 2018 and 2018 to 2019? 20172018 2019 Product Quantity Price Quantity Price Quantity Price
- 5. Sugar cane 240 $ 0.80 240 $ 1.00 300 $ 1.15 Yo – yos 600 $ 2.50 700 $ 3.00 750 4.00 Run 150 10.00 160 12.00 180 15.00 Peanuts 500 2.00 450 2.50 450 2.50 Harmonicas 75 25.00 45 30.00 85 30.00 Peanut butter 100 4.50 85 4.50 85 5.00 Example of calculating inflation using CPI Price per Unit in Units Purchased 2013 2014 2015 2016
- 6. Blueberries 8 $2.00 $2.00 $2.10 $2.40 Pineapples 5 $2.00 $2.50 $2.50 $3.00 Cheese 3 $2.50 $3.00 $3.50 $4.00 From the table above find the following: A. The bundle price for the goods in period 2014 is? B. Suppose 2014 is the base year. The price index in 2014 is? C. If 2014 is the base year, the price index in 2013 is? D. If 2014 is the base year, the price index in 2015 is? E. If 2014 is the base year, the inflation rate between 2014 and 2015 is? 6 – Suppose the number of employed people in an economy is 321,545,372, the unemployment rate in this economy is 7.4 percent, or .074, and the labor force participation rate is 80 percent, or .80. Require A- What is the size of the labor force? B – How many people are unemployed? C- What is the size of the working – age population?
- 7. Refer to the information provided in the table below to answer the following Production Prices 2010 2015 2010 2015 Apple 5 7 $1.75 $2.25 Banana 3
- 8. 5 $2.00 $1.50 Orange 11 6 $2.00 $2.75 1) What is the value for this economy's nominal GDP in 2010 and 2015? ………………………………………………………………………… ………………………………………………………………………… ………………………………………………………………………… ………………………………………………………………………… ………………………………………………………………………… ………………………………………………………………… ………………………………………………………………………… ……………………………………………………………………… 2) Using 2010 as a base year, what is the growth rate in the real GDP? ………………………………………………………………………… ………………………………………………………………………… ………………………………………………………………………… ………………………………………………………………………… ………………………………………………………………………… ………………………………………………………………… ………………………………………………………………………… ……………………………………………………………………… 3) Using 2015 as a base year, what is the growth rate in the real GDP? ………………………………………………………………………… ………………………………………………………………………… ………………………………………………………………………… ………………………………………………………………………… ………………………………………………………………………… …………………………………………………………………
- 9. ………………………………………………………………………… ……………………………………………………………………… 4) Using the new procedure of the Bureau of Economic Analysis (BEA), what is the growth rate in the real GDP? ………………………………………………………………………… ………………………………………………………………………… ………………………………………………………………………… …………………………………………………………………… 5) If 2015 is the base year, what is the inflation rate in this economy? ………………………………………………………………………… ………………………………………………………………………… ………………………………………………………………………… ………………………………………………………………………… ………………………………………………………………………… ………………………………………………………………… ………………………………………………………………………… ……………………………………………………………………… Refer to the information provided in the table below to fill the empty spaces. Year Population 16 years old and over (M) Employed (M) Unemployed (M) Labor Force (M) Labor Force Participation Rate (%) Unemployment Rate (%) 2017 178 95 115
- 11. Question 1: a. Explain the main differences and similarities between each other. The difference between mutual funds and ETFs is that mutual funds trade in the end of the day, while ETFs trade through a day, so they are more like stocks. When trading ETF’s you have an ability to place stock orders, which helps you to overcome risks which can occur when one them has fallen in the price or has unpredictable behaviour on the market. It’s also called a stop order. When we compare it to mutual funds, investors don’t have this ability to overcome the risks. If we compare both in trading, ETF’s are defiantly safer than mutual funds. Another major difference between them is that for a mutual fund your investment should be minimum of 3000 dollars as they wouldn’t accept lesser amount, while to invest in ETF you can buy one share of a company for 50 dollars. Also comparing them in expenses, mutual fund will have higher expense ratio than ETF’s. Another difference is that mutual funds are actively managed, while the ETF’s are not, as they follow the programmed index that is very specific The similarities between mutual funds and ETF’s, they are both safer in investing than bonds and stocks. Because one fund can include hundreds of different stocks. “The biggest similarity between ETFs (exchange-traded funds) and mutual funds is that they both represent professionally managed collections, or "baskets," of individual stocks or bonds.” (investor.vanguard.com). If you are investor, both will offer investment options, one could have higher risks, another one lower, it depends on what you want to achieve from your investment. b) Explain what are the main advantage and disadvantage of investing in mutual funds or ETFs ETF’s Advantages of ETF’s are that they have low costs, when buying
- 12. one of the portfolios, the commission will be as low as 5 dollars, which is nothing, as the costs of buying single stock will be the same. One of the biggest advantage of investing in ETF’s is diversification, as they cover all major trading sectors and are mixed in one portfolio, again it depends on your desires from what you want to achieve, now days there are hundreds of ETF’s to choose from. Third advantage that was mentioned, is that you can enter with low investment, which starts at some ETF’s at 50 dollars. Fourth advantage is that they are traded on any time during a day, which gives flexibility to an investor. Last advantage is that investors have more control on incurring taxes as they are passively managed. Disadvantages of investing in ETF’s are that they are passively managed and are following programmed index, it may not have the top stocks in the portfolio of ETF’s and normally they stay the same and don’t change the portfolio. “Also by owning the index, or ETF tracking the index, you may own more of expensive over priced stocks and less of the bargain under - priced or value stocks.” (arborinvestment). Mutual Funds Advantages of mutual funds are that they are controlled by professional managers, from who you can have an advice on your portfolio/investment. So the investor, doesn’t have to do a research where to invest money, its good option, especially if you don’t have any knowledge and experience. Second will be diversification, so the risks are spread, if one stock does bad, another one can go up, so you have less risks, usually one portfolio will consist of 50 to 200 stocks. Another one is that after getting dividends, they are being reinvested. Disadvantages of investing in mutual funds are that your minimum investment will start from couple of thousands, so if you are planning to try it for first time, it may not be the right
- 13. place. As the managers have control over your money, and if stocks will go down and you lose your money, the manager will be the one who is responsible for that. The third one will be that you have to pay management fees. And the last one will be that some of the mutual funds looks your investments for 5 to 7 years. c) Explain the main difference between active and passive management The first difference between passive and active management is a strategy. It’s different in the approach of how the investment is held through time in the portfolio. The aim of active management has a goal of getting the best out of the portfolio, which means its moderated all the time and adjusted to a situation on the market. While passive management is aimed on imitation of specific index. Second one are returns. Active management is aimed on getting highest returns, while passive one makes small returns. Comparing in returns, passive one is safer one active one. Third one are fees. Active management requires a lot of attention and making researches, which means the fees and expenses are high. In passive management there are no managers, so which means they have very low fees. Another major difference is transparency. You can track your passive investment as it tracks an index, while in active they are not transparent, one of the reasons could be that they hide information from competitors. Question 2 2. Go to https://www.morningstar.com a. What information does provide the Morningstar Style Box®? b. Morningstar assigns a Rating to each Mutual Fund. What are the criteria they use to assign this rating? c. Use the information provided above (style box and ratings) to
- 14. choose 5 different mutual funds/ETFs (5 funds/ETFs per each portfolio) to prepare 3 portfolios for 3 different types of investors: - Aggressive - Moderate - Conservative b. In half a page for each portfolio, explain: · The rationale behind choosing the given funds/ETFs per each portfolio · The criteria chosen to build each portfolio c. Follow up the prices for all 3 portfolios for a week. Calculate the return for each portfolio at the end of the week. Explain your results. References https://www.thebalance.com/differences-between-mutual-funds- and-etfs-2466791 https://investor.vanguard.com/etf/etf-vs-mutual-fund#/layer1 http://www.arborinvestmentplanner.com/what-is-an-etf- advantages-disadvantages-newsletter/