CH 4 Flashcards
What does “NAV” stand for?
Net asset value
What is the formula for NAV?
Net asset value = (Market value of assets - liabilities)/ Shares outstanding
What is the definition of NAV?
Assets minus liabilities expressed on a per-share basis.
Define “unit investment trusts”.
Money pooled from many investors that is invested in a portfolio fixed for the life of the fund.
Define “open-end fund”.
A fund that issues or redeems its shares at net asset value.
Define “closed-end fund”.
Shares may not be redeemed, but instead are traded at prices that can differ from net asset value.
How do you “cash-out” your shares from a open-end fund?
You sell your shares back to the fund at current market NAV.
How do you cash out your shares from closed-end funds?
You sell your shares on a general organized exchange, not back to the fund.
What does the acronym “REIT” stand for?
Real estate investment trusts (REITS)
What does a “REIT” do?
REITs invest in real estate or loans secured by real estate. Most tend to be highly leveraged, with a typical debt ratio of 70%.
What two principal types of REITs are there?
Equity trusts, which invest in real estate directly.
Mortgage trusts, which invest primarily in mortgage and construction loans.
What do types of investments do ‘money market mutual funds’ typically hold?
Short-term, low-risk instruments of the money market.
Examples: treasury bills, commercial paper, repurchase agreements, certificates of deposit.
What do types of investments do ‘bond market mutual funds’ typically hold?
Fixed-income securities.
What is the formula for the ‘rate of return’ of a mutual fund?
Rate of return = NAV1 - NAV0 + Income and capital gain distributions / NAV0
Where:
NAV0 = NAV at time 0
Define ‘soft dollars’
The value of research services that brokerage houses provide “free of charge” in exchange for the investment manager’s business.
