Chapter 16

Question 1

Outline the risks in deriving the price of a unit (7)

Answer 1

• unit prices are determined at discrete points in time but underlying assets change continuously
• This becomes a problem when there are sudden asset movements
• and when there are timing delays that cause mismatched between A and L that depend on unit value
• Risks in actual calc: approximations of tax, accrued assets and liabilities, market value of assets that arent observable at the time
• errors in calc
• using the wring basis
• prices based on incorrect data