Javier Cuadra

Investments
Jacob Tenney

CHAPTER 12 DISCUSSION QUESTIONS (1,8,15-16)

1.What are investments companies?

An investment fund is a company or trust that is involved in the practice of managing shared
equity money in financial securities.

8. Describe ETFs.

An exchange-listed fund (ETF) is a stock market listed investment fund, much like bonds. An
ETF owns securities such as stocks, commodities or bonds and typically works through an
arbitration system intended to keep it priced close to its net asset value, but often there can be
exceptions.

15. List several advantages of mutual funds.

- Liquidity -Diversification -Expert Management -Less cost for bulk transactions

-Cost-efficiency -Automated payments -Suit your financial goals -Quick & painless process
-Tax-efficiency -Invest in smaller denominations -Safety -Systematic or one-time investment

16. List several disadvantages of mutual funds.

 Have hidden fees

 Lack Liquidity

 High Sales Charges

 Poor trade execution

 High capital gains distributions.

CHAPTER 13 DISCUSSION QUESTIONS (1 & 8)

1. Explain the process of using mutual funds to implement an investment plan once an
asset allocation has been completed using a mean variance optimization model and a
risk tolerance tool for the investor.

Mutual funds pool capital from a group of creditors, and then a fund manager brings it into a
debt, bond and government securities portfolio. Every day, at the end of trading, mutual
funds are expected to determine their net asset value, which is their assets minus liabilities.
 The theory of mutual funds is an investment technique in which mutual funds are used solely
in a portfolio for diversification and optimization of mean variances. The latter term can be
described as risk weighing against the anticipated return from an investment.

8. How might the changing of a mutual fund’s asset base impact performance?

As the valuation of the underlying investments of a portfolio grows, the asset size of the fund
decreases. Inflow of capital from the creditors. That is why the asset size of a fund will continue
to rise even though it delivers a negative return.

CHAPTER 14 DISCUSSION QUESTION (1)

1. What is a derivative?

A derivative is a contract between two or more parties whose interest is dependent on a financial
asset (like a security) or asset collection (like an index) agreed upon on. Various underlying
assets include shares, commodities, currencies, interest rates, stocks and market indices.