Term
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Definition
1. the index is grossly affected by changes in the number of shares outstanding.
2. most of the weight is placed on the stocks with the highest price -even the smallest companies being compared.
3. must adjust index for stock-splits by adjusting the divisor. |
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Term
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Definition
1. weights stocks based on mkt capitalization.
2. large firms have higher weights than small firms.
3. no need to adjust index for stock-splits, since there is no change in mkt capitalization.
4. basically, it compares mkt capitalization at the present time w/ mkt capitalization today. |
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Term
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Definition
| 1. each stock has the same weight regardless of mkt capitalization. |
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Term
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Definition
| 1. each stock has the same weight regardless of mkt capitalization. |
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Term
mutual funds: Benefits
diversification |
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Definition
1. ez way to diversify.
- however, optimal diversification level may not be achieved due to fund investment restrictions limiting the amount of an asset to <5%. |
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Term
mutual funds: Benefits
professional management |
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Definition
| Professional managers can do the investing for investors that don't have the education to make wise investments for themselves. |
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Term
mutual funds: Benefits
reduced trading costs |
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Definition
| this is due to large size funds allowing investor the privilege of having lower trading costs. |
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Term
mutual funds: Benefits
systematic accumulation and withdrawal plans |
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Definition
1. many funds provide withdrawals from checking accounts to help investors discipline their savings.
2. older clients have started receiving cash flows into their personal account on a regular basis to provide necessary cash. |
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Term
mutual funds: Benefits
checking accounts |
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Definition
many funds offer the ability to write checks much like a bank checking account.
- there are limits on the size and number of withdrawals per period. |
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Term
mutual funds: Benefits
switching services |
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Definition
| most fund families allow investors to switch between individual funds. |
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Term
mutual funds: Benefits
security custody and bookkeeping |
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Definition
1. fund takes care of record keeping; determines specific tax liabilities, ordinary income and capital gains.
2. funds maintain physical custody of securities. |
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Term
mutual funds: Benefits
increasing an economy's cap. supply |
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Definition
1. making it easier for small investors to invest funds increase the amount of capital available to firms.
2. helps facilitate an increase in aggregate savings in the overall economy. |
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Term
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Definition
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Term
mutual funds: Costs
management fees |
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Definition
| accrued by covering day-to-day management expenses, which vary depending on the fund. |
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Term
mutual funds: Costs
12b-1 fees |
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Definition
fees used to cover selling expenses such as advertising and sales staff; expensed directly and can be up to 1.25% avg. daily fund asset values.
-prospectus contains information on fund objectives, expenses, historical performance, risks, who should invest, who is managing the fun, etc. |
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Term
mutual funds: Costs
accounting, distribution, and other misc. costs |
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Definition
1. most funds issue monthly statements.
2. staffing requirements
3. office space |
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Term
mutual funds: Costs
suboptimal investment |
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Definition
various funds might not allocate assets optimally for each individual.
-solved by using specialty funds (health care, tech., utilities, etc.) |
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Term
mutual funds: Costs
transaction costs |
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Definition
| costs of active trading are usually reported as part of the management fee. |
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