Investment companies

Question 1

When were mutual funds born and when did they have their growth?

Answer 1

Born after WWI, and growth in the 70s 80s

Question 2

Why did mutual funds have a growth?

Answer 2

From the rise in retirement funds under management by MFs ~25%

Question 3

Are MFs measured by size or equity? And how important are they in FI? (1st, 2nd…)

Answer 3

By asset, and 2nd

Question 4

What was the insurance run and what happened to MFs?

Answer 4

It happened in 2008 when a MMF had a huge loss of $785 million of commercial paper by Lehman Brothers. Following that many people got their money out from MFs ($200 bi) and treasury guaranteed payments on MFs for one year to stop runs.

Question 5

Who mainly sponsor MFs?

Answer 5

25 companies managed around 75% of industry assets in 2006

Question 6

What are Market Mutual funds?

Answer 6

Short-term fund. Funds consisting of various mixtures of money market securities

Question 7

Can participation be redeemed at MMFs?

Answer 7

Yes

Question 8

What is the predominant risk in MMFs?

Answer 8

Interest rate risk

Question 9

What are tax-exempt money market mutual funds?

Answer 9

They contain various mixed of those money market securities w maturity < 1

Question 10

What are the predominant risks in long-term mutual funds?

Answer 10

market/systematic risk and interest rate risk

Question 11

What are the 3 types of long-term mutual funds?

Answer 11

1. EQUITY FUNDS –> mainly in common and preferred stock
2. BOND FUNDS –> fixed-income capital market debt securities
3. HYBRID FUNDS –> both stocks and bond securities

Question 12

What is an open-end MF?

Answer 12

Funds where the # of supply of shares isn’t fixed, but increase/decrease depending on purchase and redemption of shares

Question 13

What is a closed-end investment company?

Answer 13

A specialized investment company that has a fixed supply of outstanding shares, but invests in the securities and assets of other firms. Like VC, PE and Insurances (think abt hot youtube guy video)

Question 14

What is a MF prospectus?

Answer 14

formal summary of proposed investments made available to potential investors. It shows returns and previous performances. Little to no info is said about risks

Question 15

Should prospectus be written in legal language or plain English?

Answer 15

Plain English

Question 16

What are index funds?

Answer 16

Funds in which managers buy securities in proportions similar to those included in a specified major index

Question 17

What is the consequence of low research on index funds?

Answer 17

Lower management fees and higher returns (more risky)

Question 18

What are Exchange traded funds (ETFs)?

Answer 18

Long term mutual funds designed to replicate a particular stock market index. Unlike index funds, ETFs can be traded during the day, sold short, and purchased on margin.