Answered: As an investment advisor, you tell a…

Microeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506893

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

ChapterST3: The Stock Market: Its Function, Performance, And Potential As An Investment Opportunity

Section: Chapter Questions

Problem 4CQ

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Question

As an investment advisor, you tell a client that an investment in a mutual fund has (over the next year) a higher expected return than an investment in the money market. The client then asks the following questions:
a. Does that imply that the mutual fund will certainly yield a higher return than the money market?
b. Does it follow that I should invest in the mutual fund rather than in the money market? How would you reply?

Definition Definition Financial market that deals in securities or assets that are short-term in nature. The money market is responsible for keeping up the liquidity of the businesses and the organizations. These securities are usually held for a period of 12 months or less and are issued by institutions that require cash or funds for their short-term cash flow requirements. The money market is regulated by the federal government.

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