Blackrock decides to issue an simple ETF, which tracks the S&P500 index. One share of the S&P500 index costs $2,950, and one share of the ETF equals 1/100th of a share of the underlying index.

Blackrock charges a management fee of 0.25%. There are ten billion shares of the ETF outstanding. The ETF is currently trading at a price of $30 per share.

1.The ETFs NAV is ["$29.50", "$30.00", "$2,950", "None of the above."]

2. The ETFs assets under management (AUM) total ["10 billion", "$29.5 billion", "$295 billion", "None of the above"]

3. The ETF is trading at a ["discount", "premium"] to NAV

4. Suppose that the ETFs AUM remains at its current level for one year. The total amount of management fees over that year is

B. Then, Wall Street has a bad day. The S&P500 falls to 2,500, and the price of the ETF falls to $23.50.

5 The ETF now trades at a ["discount", "premium"] of ["6.0%", "6.4%", "7.0%"]

6. Consider the situation described in the previous question. Which of the following arbitrage transactions is most likely to occ

a. Individual investors buy the ETF, because it is undervalued.

b. Individual investors sell the ETF, because it is overvalued.

c. Approved Participants create 100,000 ETF shares by providing 1000 shares of the S&P500 to Blackrock. Then they sell the ETF shares on the stock exchange.

d. Approved Participants buy 100,000 ETF shares on the stock exchange; then they redeem those shares in exchange for 1000 shares of the S&P500 from Blackrock, which they can sell on the stock exchange.

7. The arbitrage profit from the transaction described above is:

8. Afterwards, Wall Street recovers. The S&P500 rises to 2,750, and the price of the ETF rises to $30.00.

Which of the following arbitrage transactions is most likely to occur?

a. Individual investors buy the ETF, because it is undervalued.

b. Individual investors sell the ETF, because it is overvalued.

c. Approved Participants create 100,000 ETF shares by providing 1000 shares of the S&P500 to Blackrock. Then they sell the ETF shares on the stock exchange.

d. Approved Participants buy 100,000 ETF shares on the stock exchange; then they redeem those shares in exchange for 1000 shares of the S&P500 from Blackrock, which they can sell on the stock exchange.