bkm 10e chap004 sm final

7/21/2019 BKM 10e Chap004 SM Final

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CHAPTER 4: MUTUAL FUNDS ANDOTHER INVESTMENT COMPANIES


PROBLEM SETS

1. The unit investment tust sh!u"# h$ve "!%e !&e$tin' e(&enses. )e*$use theinvestment tust &!t+!"i! is +i(e# !n*e the tust is est$,"ishe#- it #!es n!t h$ve t!&$ &!t+!"i! m$n$'es t! *!nst$nt" m!nit! $n# e,$"$n*e the &!t+!"i! $s&e*eive# nee#s ! !&&!tunities *h$n'e. )e*$use the &!t+!"i! is +i(e#- the unitinvestment tust $"s! in*us vitu$"" n! t$#in' *!sts.

/. $. Unit investment trusts: Divesi+i*$ti!n +!m "$'e0s*$"e investin'- "!%et$ns$*ti!n *!sts $ss!*i$te# %ith "$'e0s*$"e t$#in'- "!% m$n$'ement +ees-&e#i*t$,"e &!t+!"i! *!m&!siti!n- 'u$$ntee# "!% &!t+!"i! tun!ve $te.

,. Open-end mutual funds: Divesi+i*$ti!n +!m "$'e0s*$"e investin'- "!%et$ns$*ti!n *!sts $ss!*i$te# %ith "$'e0s*$"e t$#in'- &!+essi!n$" m$n$'ementth$t m$ ,e $,"e t! t$e $#v$nt$'e !+ ,u ! se"" !&&!tunities $s the $ise-e*!# ee&in'.

*. Individual stocks and bonds: N! m$n$'ement +ee2 $,i"it t! *!!#in$tee$"i3$ti!n !+ *$&it$" '$ins ! "!sses %ith invest!s &es!n$" t$( situ$ti!ns2*$&$,i"it !+ #esi'nin' &!t+!"i! t! invest!s s&e*i+i* is $n# etun &!+i"e.

5. O&en0en# +un#s $e !,"i'$te# t! e#eem invest!6s sh$es $t net $sset v$"ue $n# thusmust ee& *$sh ! *$sh0e7uiv$"ent se*uities !n h$n# in !#e t! meet &!tenti$"e#em&ti!ns. C"!se#0en# +un#s #! n!t nee# the *$sh eseves ,e*$use thee $e n!e#em&ti!ns +! *"!se#0en# +un#s. Invest!s in *"!se#0en# +un#s se"" thei sh$es%hen the %ish t! *$sh !ut.

4. )$"$n*e# +un#s ee& e"$tive" st$,"e &!&!ti!ns !+ +un#s investe# in e$*h $sset*"$ss. The $e me$nt $s *!nvenient instuments t! &!vi#e &$ti*i&$ti!n in $ $n'e!+ $sset *"$sses. Li+e0**"e +un#s $e ,$"$n*e# +un#s %h!se $sset mi( 'ene$""#e&en#s !n the $'e !+ the invest!. A''essive "i+e0**"e +un#s- %ith "$'e

investments in e7uities- $e m$ete# t! !un'e invest!s- %hi"e *!nsev$tive "i+e0**"e +un#s- %ith "$'e investments in +i(e#0in*!me se*uities- $e #esi'ne# +! !"#einvest!s. Asset $""!*$ti!n +un#s- in *!nt$st- m$ v$ the &!&!ti!ns investe# ine$*h $sset *"$ss , "$'e $m!unts $s &e#i*ti!ns !+ e"$tive &e+!m$n*e $*!ss*"$sses v$. Asset $""!*$ti!n +un#s thee+!e en'$'e in m!e $''essive m$ettimin'.

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8. Un"ie $n !&en0en# +un#- in %hi*h un#e"in' sh$es $e e#eeme# %hen the +un# ise#eeme#- $ *"!se#0en# +un# t$#es $s $ se*uit in the m$et. Thus- thei &i*esm$ #i++e +!m the NAV.

9. A#v$nt$'es !+ $n ETF !ve $ mutu$" +un#:

ETFs $e *!ntinu!us" t$#e# $n# *$n ,e s!"# ! &u*h$se# !n m$'in.

Thee $e n! *$&it$" '$ins t$( ti''es %hen $n ETF is s!"# sh$es $e ;ust

s!"# +!m !ne invest! t! $n!the


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11. $. [email protected]?@@@-@@@-8

@@@-@@@-5?@@@-@@@-/@@?NAV =

=

,. Pemium ! #is*!unt< BNAV

NAVi*eP B

[email protected]?

[email protected]?59? B @.@9- ! 0.9>

The +un# se""s $t $n .9> #is*!unt +!m NAV.

1/.1 @

@

NAV NAV Disti,uti!ns ?1/.1@ ?1/.8@ ?1.8@@.@- ! .>

NAV ?1/.8@

+ += =

15. $. St$t0!+0e$ &i*e:P@B ?1/.@@ 1.@/ B ?1/./4

En#0!+0e$ &i*e:P1B ?1/.1@ @.5 B ?11./8

A"th!u'h NAV in*e$se# , [email protected]@- the &i*e !+ the +un# #e*e$se# , ?@..

R$te !+ etun B1 @

@

Disti,uti!ns ?11./8 ?1/./4 ?1.8@@.@4/- ! 4./>

?1/./4

P P

P

+ += =

,. An invest! h!"#in' the s$me se*uities $s the +un# m$n$'e %!u"# h$vee$ne# $ $te !+ etun ,$se# !n the in*e$se in the NAV !+ the &!t+!"i!:

1 @

@

NAV NAV Disti,uti!ns ?1/.1@ ?1/.@@ ?1.8@@.155- ! 15.5>

NAV ?1/.@@

+ += =

14. $. Em&ii*$" ese$*h in#i*$tes th$t &$st &e+!m$n*e !+ mutu$" +un#s is n!thi'h" &e#i*tive !+ +utue &e+!m$n*e- es&e*i$"" +! ,ette0&e+!min' +un#s.hi"e thee may,e s!me ten#en* +! the +un# t! ,e $n $,!ve $ve$'e&e+!me ne(t e$- it is un"ie" t! !n*e $'$in ,e $ t!& 1@> &e+!me.

,. On the !the h$n#- the evi#en*e is m!e su''estive !+ $ ten#en* +! &!!&e+!m$n*e t! &esist. This ten#en* is &!,$," e"$te# t! +un# *!sts $n#tun!ve $tes. Thus i+ the +un# is $m!n' the &!!est &e+!mes- invest!ssh!u"# ,e *!n*ene# th$t the &!! &e+!m$n*e %i"" &esist.

18. NAV@B ?/@@-@@@-@@@G1@-@@@-@@@ B ?/@

Divi#en#s &e sh$e B ?/-@@@-@@@G1@-@@@-@@@ B ?@./@

NAV1is ,$se# !n the > &i*e '$in- "ess the 1> 1/,01 +ee:

NAV1B ?/@ 1.@ 1 @.@1< B ?/1.54

R$te !+ etun B/@?

/@.@?/@?5C4./1? +B @.@=/- ! =./>

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19. The e(*ess !+ &u*h$ses !ve s$"es must ,e #ue t! ne% in+"!%s int! the +un#.Thee+!e- ?4@@ mi""i!n !+ st!* &evi!us" he"# , the +un# %$s e&"$*e# , ne%h!"#in's. S! tun!ve is: ?4@@G?/-/@@ B @.1/- ! 1./>.

1=. Fees &$i# t! investment m$n$'es %ee: @.@@= ?/./ ,i""i!n B ?18.4 mi""i!nSin*e the t!t$" e(&ense $ti! %$s 1.1> $n# the m$n$'ement +ee %$s @.=>- %e*!n*"u#e th$t @.4> must ,e +! !the e(&enses. Thee+!e- !the $#minist$tive

e(&enses %ee: @.@@4 ?/./ ,i""i!n B ?. mi""i!n.

1. As $n initi$" $&&!(im$ti!n- !u etun e7u$"s the etun !n the sh$es minus the

t!t$" !+ the e(&ense $ti! $n# &u*h$se *!sts: 1/> 1./> 4> B 9.>.

)ut the &e*ise etun is "ess th$n this ,e*$use the 4> "!$# is &$i# u& +!nt- n!t $tthe en# !+ the e$.

T! &u*h$se the sh$es- !u %!u"# h$ve h$# t! invest: ?/@-@@@G1

@.@4< B ?/@-55.The sh$es in*e$se in v$"ue +!m ?/@-@@@ t!: ?/@-@@@ 1.1/ @.@1/< B ?//-19@.

The $te !+ etun is: ?//-19@ ?/@-55.

1.

Assume $1,000 ines!men! L!$#e#0U& Fun# E*!n!m Fun#

"e#%& '()!* +ris -. 1 .@1 .@@=8


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/1. Su&&!se !u h$ve ?1-@@@ t! invest. The initi$" investment in C"$ss A sh$es is ?4@net !+ the +!nt0en# "!$#. A+te +!u e$s- !u &!t+!"i! %i"" ,e %!th:

?4@ 1.1@- $n# !u %i"" &$ $ 1> ,$*0en# "!$# +ee i+ !u

se"" $+te +!u e$s. !u &!t+!"i! v$"ue $+te +!u e$s %i"" ,e:

?1-@@@ 1.@8"!$# *h$'e# t! C"$ss A invest!s.

//. $. A+te t%! e$s- e$*h #!""$ investe# in $ +un# %ith $ 4> "!$# $n# $ &!t+!"i!

etun e7u$" t! r%i"" '!% t!: [email protected] 1 r @.@@8


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*. ith $ 1/,01 +ee inste$# !+ $ +!nt0en# "!$#- the &!t+!"i! must e$n $ $te !+etun r< th$t s$tis+ies:

1 r @.@@8 @.@@=8 J 1.@9

In this *$se- rmust e(*ee# =./8> e'$#"ess !+ the investment h!i3!n.

/5. The tun!ve $te is 8@>. This me$ns th$t- !n $ve$'e- 8@> !+ the &!t+!"i! is s!"#$n# e&"$*e# %ith !the se*uities e$*h e$. T$#in' *!sts !n the se"" !#es [email protected]> $n# the ,u !#es t! e&"$*e th!se se*uities ent$i" $n!the @.4> in t$#in'

*!sts. T!t$" t$#in' *!sts %i"" e#u*e &!t+!"i! etuns ,: / @.4> @.8@ B @.4>

/4. F! the ,!n# +un#- the +$*ti!n !+ &!t+!"i! in*!me 'iven u& t! +ees is:

>@.4

>9.@

B @.18@- ! 18.@>

F! the e7uit +un#- the +$*ti!n !+ investment e$nin's 'iven u& t! +ees is:

>@.1/

>9.@B @.@8@- ! 8.@>

Fees $e $ mu*h hi'he +$*ti!n !+ e(&e*te# e$nin's +! the ,!n# +un# $n# thee+!em$ ,e $ m!e im&!t$nt +$*t! in se"e*tin' the ,!n# +un#.

This m$ he"& t! e(&"$in %h unm$n$'e# unit investment tusts $e *!n*ent$te# inthe +i(e# in*!me m$et. The $#v$nt$'es !+ unit investment tusts $e "!% tun!ve-"!% t$#in' *!sts- $n# "!% m$n$'ement +ees. This is $ m!e im&!t$nt *!n*en t!

,!n#0m$et invest!s.

/8. Su&&!se th$t +inishin' in the t!& h$"+ !+ $"" &!t+!"i! m$n$'es is &ue" "u*- $n#th$t the &!,$,i"it !+ #!in' s! in $n e$ is e($*t" . Then the &!,$,i"it th$t $n&$ti*u"$ m$n$'e %!u"# +inish in the t!& h$"+ !+ the s$m&"e +ive e$s in $ !% is

bkm 10e chap004 sm final

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