Q8A - Problem Set Week 8 Solutions 1. What are the...

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Problem Set Week 8 – Solutions 1. What are the attractions and drawbacks of managed investment schemes? Attractions of managed investment schemes a. Diversification (across asset classes {Balanced Fund} or within asset classes {Diversified Share Fund) / specialised (focussed on a single asset class {Global Share Fund} or within asset classes {European Share Fund}), or somewhere in between (investor can select based on their unique needs and objectives) b. Full-time professional management c. Modest investment outlays ($1,000, $100 per month) d. Paperwork for tax purposes provided by fund manager (fees are structured to compensate the fund manager for these services) e. Easy of entry for small investors (“Mum & Dad investors – not only for the wealthy or privileged) Drawbacks of managed investment schemes a. High transaction costs (relative cost as asset based fees e.g. 0.80 % of assets ongoing) b. Management fees every year (regardless of performance of the investment) c. Same risk as direct investment in the same types of assets d. Arguably not as “interesting” as direct investment.
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This note was uploaded on 12/06/2011 for the course ECON 101 taught by Professor Shen during the Three '11 term at Monash.

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Q8A - Problem Set Week 8 Solutions 1. What are the...

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