Investments Exam 2

Which type of investment fund is known to invest in options and futures in large scale?

hedge funds

Mutual funds benefits:

the ability to invest with small amounts of money, diversification, professional management, low transaction costs, tax benefits, and the ability to reduce administrative functions

Mutual funds disadvantages:

operating expenses, marketing expenses, distribution charges, and loads.

Loads: 

fees paid when investors purchase or sell the shares

Close-end funds trade on:

the open market and are thus subject to market pricing

Open-end funds are sold by:

the mutual fund and must reflect the NAV of the investments

What are 12b-1 fees? 

annual fees charged by a mutual fund to pay for marketing and distribution costs

What is a unit investment trust?

an unmanaged mutual fund

Which funds are the most tax effective since they don’t have as many distributions?

exchange-traded funds

Which types of funds do not require load charges, management fees, and minimum investment amounts?

exchange-traded funds

What are the disadvantages of exchange-traded funds?

they must be purchased from brokers for a fee and investors may incur a bid-ask spread when purchasing one

Which type of funds require higher fees, are available only to accredited investors, and provide less transparency to investors?

hedge funds

Do mutual funds have management fees?

yes

Do mutual funds have performance fees?

no

Do hedge funds have management fees?

yes

Do hedge funds have performance fees?

yes

reward to volatility ratio = ?

portfolio risk premium/standard deviation of portfolio excess return

expected return for your fund = ?

t-bill rate + risk premium