In: Finance
Your answers to these questions should be detailed and clearly demonstrate that you understand the concept of ETFs and their implications.
An ETF or exchange traded fund is a basket of assets (such as stocks or bonds) that can be traded on a stock exchange. The benefit of an ETF is that it helps investors diversify their investments in a highly liquid manner. It is like a mutual fund that can be traded in real time. Investors can buy a certain number of units of this kind of a fund. This is analogous to an investor buying a certain number of stocks in a company.
A bond ETF is an exchange traded fund that is composed of bonds. It can consist of both government and corporate bonds.
NAV or net asset value is the total market value of an exchange traded fund divided by its total number of units. It is the essentially the price at which an investor can buy or sell one unit of an exchange traded fund.
A relatively risk averse investor would like to invest in a bond ETF as bonds are less risky than stocks.