B open end funds diversification from large scale

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b. Open-end funds : diversification from large-scale investing, lower transaction costs associated with large-scale trading, professional management that may be able to take advantage of buy or sell opportunities as they arise, record keeping. c. Individual stocks and bonds : No management fee, realization of capital gains or losses can be coordinated with investor’s personal tax situation, portfolio can be designed to investor’s specific risk profile. 10. Open-end funds are obligated to redeem investor's shares at net asset value, and thus must keep cash or cash-equivalent securities on hand in order to meet potential redemptions. Closed-end funds do not need the cash reserves because there are no redemptions for closed-end funds. Investors in closed-end funds sell their shares when they wish to cash out. 4-2
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11. Balanced funds keep relatively stable proportions of funds invested in each asset class. They are meant as convenient instruments to provide participation in a range of asset classes. Life-cycle funds are balanced funds whose asset mix generally depends on the age of the investor. Aggressive life-cycle funds, with larger investments in equities, are marketed to younger investors, while conservative life- cycle funds, with larger investments in fixed-income securities, are designed for older investors. Asset allocation funds, in contrast, may vary the proportions invested in each asset class by large amounts as predictions of relative performance across classes vary. Asset allocation funds therefore engage in more aggressive market timing. 12. a. Empirical research indicates that past performance of mutual funds is not highly predictive of future performance, especially for better-performing funds. While there may be some tendency for the fund to be an above average performer next year, it is unlikely to once again be a top 10% performer. b. On the other hand, the evidence is more suggestive of a tendency for poor performance to persist. This tendency is probably related to fund costs and turnover rates. Thus if the fund is among the poorest performers, investors would be concerned that the poor performance will persist. 13. NAV 0 = $200,000,000/10,000,000 = $20 Dividends per share = $2,000,000/10,000,000 = $0.20 NAV 1 is based on the 8% price gain, less the 1% 12b-1 fee: NAV 1 = $20 × 1.08 × (1 – 0.01) = $21.384 Rate of return = 20 $ 20 . 0 $ 20 $ 384 . 21 $ + = 0.0792 = 7.92% 14. The excess of purchases over sales must be due to new inflows into the fund. Therefore, $400 million of stock previously held by the fund was replaced by new
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b Open end funds diversification from large scale investing...

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