Nick is nearing retirement and is looking to purchase a mutual fund that will provide a relatively safe investment as well as regular income payments.Among mutual funds with an income objective, Nick can either buy shares inwhich invest in CDs, governmentsecurities, and short-term obligations issued by corporations, or he can invest infor a slightly higher current incomereturn and the potential for capital appreciation as well.Within the category of bond funds are even more specific options. Nick decides to buy shares in a fund that invests in Treasury issues maturing inmore than ten years, known asbonds. He is also collecting income from shares he already owns in afund, a type of fund that invests in securities issued by agencies such as Fannie Mae and Freddie MacGrowth ObjectiveKaren is a 32-year-old woman with two children who owns her own home and has a substantial retirement account. She recently received aninheritance from her uncle and is looking to invest in a mutual fund that invests in stocks with market capitalization of more than $10 billion. Shedecides to purchaseshares.Growth and Income ObjectiveCarlos is a 25-year-old engineer who plans to invest $500 from each monthly paycheck in a mutual fund. He is interested in a fund that balancescurrent income and capital gains, but with an emphasis on capital gains, so be buys, $2,000 worth ofshares. Hewould also like to put some money into a fund that divides investments wisely among different types of asset classes; therefore, he purchasesshares as well,One feature common to all of the above mutual funds is the beneficiary designation, Based on the characteristics of the investors above, this featurewould be of most interest to

To invest your money, mutual fund shares are divided into many types. These can be classified as…

Answered: Nick is nearing retirement and is…

Personal Finance

13th Edition

ISBN:9781337669214

Author:GARMAN

Publisher:GARMAN

Chapter15: Mutual And Exchange Traded Funds

Section: Chapter Questions

Problem 1FPC

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Suppose you are 28 and married. You and your spouse file for income taxes jointly. You are in the 25% tax bracket. You are considering a few personal investment issues. Suppose you believe the security market is efficient in the weak form but not efficient in the semi-strong form. Based on your belief, you would consider all of the following strategies EXCEPT ____. a. Investing in an actively managed mutual fund specialized in following price trends of commodities (e.g., gold, copper, crude oil, wheat, etc.). b. Investing in an actively managed mutual fund specialized in picking small-size stocks. c. Investing in an actively managed mutual fund specialized in picking technologystocks. d. Investing in an actively managed mutual fund specialized in picking speculative-grade bonds (or junk bonds).
An investor seeking to invest in one of these three alternatives: Islamic mutual funds, ETFs or REITS. (a) if he wants stable returns and needs annual income, what would you recommend to the investor? Justify (b) If the investor interested. capital gains, what would you recommend?
Suppose that a mutual fund agent approaches you and promote a fund which allows you to withdraw money from your Employment Provident Fund (EPF) to invest. From the analysis of the agent, the fund expected to pay up to 11% return, and you know that EPF paid an average 6% return and treasury’s return fixed at 2.75%. Based on the discussion in this chapter and in your opinion, are you going to take the investment? Justify your answer
Frank Meyers, CFA, is a fixed-income portfolio manager for a large pension fund. A member of the Investiment Committee, Fred Spice, is very interested in learning about the management of fixed-income portfolios. Spice has approached Meyers with several questions. Specifically, Spice would like to know how fixed-income managers position portfolios to capitalize on their expectations of future interest rates. Meyers decides to illustrate fixed-income trading strategies to Spice using a fixed-rate bond and note. Both bonds have samiannual coupon periods. Unless otherwise stated, all interest rate (yield curve) changes are parallel. The characteristic of these securities are shown in the following table. He also considers a nine-year floating-rate bond (floater) that pays a floating rate semiannually and is currently yielding 5%. Fixed-rate bond: price 107.18, YTM 5%, TMT (years) 18, modified duration (years) 6.9848. Fixed-rate note: price 100, YTM 5%, TMT (years) 8, modified duration…
During an interview with her investment adviser, a retired investor made the following two statements:a. “I have been very pleased with the returns I’ve earned on Petrie stock over the past two years and I am certain that it will be a superior performer in the future.”b. “I am pleased with the returns from the Petrie stock because I have specific uses for that money. For that reason, I certainly want my retirement fund to continue owning the Petrie stock.”Identify which principle of behavioral finance is most consistent with each of the investor’s two statements.
If an investor had enough money to diversify adequatelythrough buying individual securities, why might he orshe still consider buying mutual funds instead?
Suppose Caroline is choosing how to allocate her portfolio between two asset classes: risk-free government bonds and a risky group of diversified stocks. The following table shows the risk and return associated with different combinations of stocks and bonds. There is a relationship between the risk of Caroline's portfolio and its average annual return.Suppose Caroline currently allocates 75% of her portfolio to a diversified group of stocks and 25% of her portfolio to risk-free bonds; that is, she chooses combination D. She wants to reduce the level of risk associated with her portfolio from a standard deviation of 15 to a standard deviation of 5. In order to do so, she must do which of the following? Check all that apply. Sell some of her stocks and use the proceeds to purchase bondsSell some of her bonds and use the proceeds to purchase stocksPlace the entirety of her portfolio in bondsAccept a lower average annual rate of returnThe table uses the standard deviation of the…
As a wealthy individual investor, you are planning to invest your $2 million in a fund of funds which invests in 2 different hedge funds, namely hedge fund A and B. The incentive fees are 20% for all funds including the fund of funds. The incentive fee is applicable when a fund earns a positive return. Let’s assume that funds A and B generate 10% and -15% gross returns, respectively. Given the information above, please fill out the below table. You can copy and paste the table to the answer section and fill it out there. You may want to show your calculations in the space below the table. Fund A Fund B Fund of Funds Start of year (millions) $1.00 $1.00 $2.00 End of year (millions) $ $ $ Gross rate of return % % % Incentive fee (millions) $ $ $ End of year, net of fee $ $ $ Net rate of return % % %
Suppose Megan is choosing how to allocate her portfolio between two asset classes: risk-free government bonds and a risky group of diversified stocks. The following table shows the risk and return associated with different combinations of stocks and bonds. As the risk of Megan's portfolio increases, the average annual return on her portfolio .Suppose Megan currently allocates 25% of her portfolio to a diversified group of stocks and 75% of her portfolio to risk-free bonds; that is, she chooses combination B. She wants to increase the average annual return on her portfolio from 3% to 7%. In order to do so, she must do which of the following? Check all that apply. Sell some of her stocks and place the proceeds in a savings accountAccept more riskSell some of her bonds and use the proceeds to purchase stocksSell some of her stocks and use the proceeds to purchase bondsThe table uses the standard deviation of the portfolio's return as a measure of risk. A normal random variable, such as a…
l&P Asset Management initiated an open-end and a closed-end mutual fund a few years ago. If you want to invest in the funds today, you: must purchase shares of each fund in the secondary (stock) market may purchase shares of each fund in either the primary (from the investment company) market or the secondary (stock) market must purchase shares of the open-end fund in the secondary (stock) market, and shares of the closed-end fund in the primary (from the investment company) market must purchase shares of the open-end fund in the primary (from the investment company) market, and shares of the closed-end fund in the secondary (stock) market
In regards to considering investment, if an investor is of a high income bracket, what kind of bond would he/she almost always be better off investing in? investment, treasury, corporate, or tax-free municipal bond?
In reviewing retirement portfolios, Kim determined the probability of a client owning stock is 0.50 and the probability of owning a bond is 0.40. If a client already has stocks in their portfolio, the probability that they own bonds is 0.50%. What is the probability a client owns both securities in their retirement portfolio?

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