One drawback of ETFs is that investors: a) are forced to pay higher cost and fee as compared to mutual funds. b) are not able to diversify their investments. C) must pay commission when making a purchase. d) can only buy or sell shares after the major stock exchanges are closed.
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- a. What are the risks and rewards of investing in the stock market as compared to the bond market?b. “Because corporations do not actually raise any funds in secondary markets, they are less important to the economy than primary markets.” Comment.Which of the following statements are NOT problems a typical large investor faces? In order to complete large transactions, they may need to accept higher transaction costs or slower time until completion. If large investors want to trade large amounts of stock without affecting the stock price and while remaining anonymous, they may use a dark pool. If they make a large transaction, they may not receive the best price for those financial securities. Large investors trades are usually executed significantly slower than small investors trades.What comment or conclusion can be made about this? Large amounts of national debt can lead to higher interest rates and lower stock prices. Stocks are a reflection of investor confidence. If those investors lose confidence in where those companies operate then their stock price will take a hit.
- With a decline in the number of publicly traded companies and the growth of other investment vehicles such as private equities, hedge funds, junk bonds, etc., some people claim that the investment world is becoming more and more unfair towards smaller investors since most of the alternative investment vehicles are only available to institutions or high-net-worth individuals. Do you agree or disagree with this claim?An investment bank’s clients wanted to manipulate its stock price in order tofacilitate a better selling price in private placement deal with a pension fund.To assist the client, the investment bank solicits other advisory clients to buythe company stock; at the same time solicits other clients to sell the samecompany stock to effect a matched. These trades represent a large percentage of the company’s stock volume, which leads to a drastic increase in price. Comment the action of the investment bank.During periods when investors become fearful that stocks are overvalued, they try to get rid of their stocks, and the stock market experienced a major decline. During these periods, interest rates also tend to decline. Use the loanable funds to explain how a massive sale of stocks leads to lower interest rates.
- A company with a poor credit rating needs to raise funds for expansion, but the bank will not give them a loan. In addition, their common stock prices are already low, so they do not want to issue more shares of common stock. What would be the best way for this company to raise funds for the expansion? Sell secured bonds. Sell callable bonds. Sell convertible bonds. Sell unsecured bonds.A disadvantage of shares as security is that a) the lender is required to register the certificate for the shares with the registrar of companies b) if a company restructures its shareholding by way of a rights issue the value of each share will increase c) the lender is required to register the certificate for the shares with the register off titles d) the value the share is always the same as its power value so lenders will have to sell in a time of high inflation will lose moneyDescribe clearly how theories from behavioural finance can justify the following abnormal phenomena of investment: (1) Investors exhibit tendency to overpay for assets with poor average return but a potential to deliver a huge payoff, such as penny stocks or corporate bonds of financially distressed companies. (2) Investors exhibit tendency to sell winning stocks too early but hold losing stocks for too long
- Which of the following is correct? Transactions within the spot market can be used to mitigate and hedge risk. In an efficient market, it is not possible that a stock of the firm has a price equal to its intrinsic value. Index funds are funds that reflect the performance of a specific index An example of an indirect transfer of capital through investment banks is when an investor buys a unit of a fund from a bank that is invested in various financial assets such as bonds and stocks of other companies.1)How does a profitable capital market help reduce the prices of goods and services? 2) The SEC attempts to protect investors who purchase newly issued securities by requiring issuers to provide relevant financial information to potential investors. The SEC does not provide an opinion on the actual value of the securities.Therefore, a reckless investor could pay too much for some shares and consequently lose a lot. Do you think the SEC should, as part of every new offering of stocks or bonds, give investors an opinion on the appropriate value of the securities being offered? Explain.One apparent violation of the Law on One Price is the pervasive discrepancy between the prices and net asset value of closed-end mutual funds. Would you expect to observe greater discrepancies on diversified or less diversified funds? Why?
