投资学第10版课后习题答案Chap004.docx

投资学第10版课后习题答案Chap004.docx

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投资学第10版课后习题答案Chap004

CHAPTER4:

MUTUALFUNDSANDOTHERINVESTMENTCOMPANIES

PROBLEMSETS

1.Theunitinvestmenttrustshouldhaveloweroperatingexpenses.Becausetheinvestmenttrustportfolioisfixedoncethetrustisestablished,itdoesnothavetopayportfoliomanagerstoconstantlymonitorandrebalancetheportfolioasperceivedneedsoropportunitieschange.Becausetheportfolioisfixed,theunitinvestmenttrustalsoincursvirtuallynotradingcosts.

2.a.Unitinvestmenttrusts:

Diversificationfromlarge-scaleinvesting,lowertransactioncostsassociatedwithlarge-scaletrading,lowmanagementfees,predictableportfoliocomposition,guaranteedlowportfolioturnoverrate.

b.Open-endmutualfunds:

Diversificationfromlarge-scaleinvesting,lowertransactioncostsassociatedwithlarge-scaletrading,professionalmanagementthatmaybeabletotakeadvantageofbuyorsellopportunitiesastheyarise,recordkeeping.

c.Individualstocksandbonds:

Nomanagementfee;abilitytocoordinaterealizationofcapitalgainsorlosseswithinvestors’personaltaxsituations;capabilityofdesigningportfoliotoinvestor’sspecificriskandreturnprofile.

3.Open-endfundsareobligatedtoredeeminvestor'ssharesatnetassetvalueandthusmustkeepcashorcash-equivalentsecuritiesonhandinordertomeetpotentialredemptions.Closed-endfundsdonotneedthecashreservesbecausetherearenoredemptionsforclosed-endfunds.Investorsinclosed-endfundsselltheirshareswhentheywishtocashout.

4.Balancedfundskeeprelativelystableproportionsoffundsinvestedineachassetclass.Theyaremeantasconvenientinstrumentstoprovideparticipationinarangeofassetclasses.Life-cyclefundsarebalancedfundswhoseassetmixgenerallydependsontheageoftheinvestor.Aggressivelife-cyclefunds,withlargerinvestmentsinequities,aremarketedtoyoungerinvestors,whileconservativelife-cyclefunds,withlargerinvestmentsinfixed-incomesecurities,aredesignedforolderinvestors.Assetallocationfunds,incontrast,mayvarytheproportionsinvestedineachassetclassbylargeamountsaspredictionsofrelativeperformanceacrossclassesvary.Assetallocationfundsthereforeengageinmoreaggressivemarkettiming.

5.Unlikeanopen-endfund,inwhichunderlyingsharesareredeemedwhenthefundisredeemed,aclosed-endfundtradesasasecurityinthemarket.Thus,theirpricesmaydifferfromtheNAV.

6.AdvantagesofanETFoveramutualfund:

ETFsarecontinuouslytradedandcanbesoldorpurchasedonmargin.

TherearenocapitalgainstaxtriggerswhenanETFissold（sharesarejustsoldfromoneinvestortoanother）.

Investorsbuyfrombrokers,thuseliminatingthecostofdirectmarketingtoindividualsmallinvestors.Thisimplieslowermanagementfees.

DisadvantagesofanETFoveramutualfund:

PricescandepartfromNAV（unlikeanopen-endfund）.

Thereisabrokerfeewhenbuyingandselling（unlikeano-loadfund）.

7.Theofferingpriceincludesa6%front-endload,orsalescommission,meaningthateverydollarpaidresultsinonly$goingtowardpurchaseofshares.Therefore:

Offeringprice=

=$

8.NAV=Offeringprice（1–Load）=$.95=$

9.StockValueHeldbyFund

A$7,000,000

B12,000,000

C8,000,000

D15,000,000

Total$42,000,000

Netassetvalue=

=$

10.Valueofstockssoldandreplaced=$15,000,000

Turnoverrate=

=,or%

11.a.

b.Premium（ordiscount）=

=

=–,or%

Thefundsellsatan%discountfromNAV.

12.

13.a.Start-of-yearprice:

P0=$×=$

End-of-yearprice:

P1=$×=$

AlthoughNAVincreasedby$,thepriceofthefunddecreasedby$.

Rateofreturn=

b.AninvestorholdingthesamesecuritiesasthefundmanagerwouldhaveearnedarateofreturnbasedontheincreaseintheNAVoftheportfolio:

14.a.Empiricalresearchindicatesthatpastperformanceofmutualfundsisnothighlypredictiveoffutureperformance,especiallyforbetter-performingfunds.Whiletheremaybesometendencyforthefundtobeanaboveaverageperformernextyear,itisunlikelytoonceagainbeatop10%performer.

b.Ontheotherhand,theevidenceismoresuggestiveofatendencyforpoorperformancetopersist.Thistendencyisprobablyrelatedtofundcostsandturnoverrates.Thusifthefundisamongthepoorestperformers,investorsshouldbeconcernedthatthepoorperformancewillpersist.

15.NAV0=$200,000,000/10,000,000=$20

Dividendspershare=$2,000,000/10,000,000=$

NAV1isbasedonthe8%pricegain,lessthe1%12b-1fee:

NAV1=$20（1–=$

Rateofreturn=

=,or%

16.Theexcessofpurchasesoversalesmustbeduetonewinflowsintothefund.Therefore,$400millionofstockpreviouslyheldbythefundwasreplacedbynewholdings.Soturnoveris:

$400/$2,200=,or%.

17.Feespaidtoinvestmentmanagerswere:

$billion=$million

Sincethetotalexpenseratiowas%andthemanagementfeewas%,weconcludethat%mustbeforotherexpenses.Therefore,otheradministrativeexpenseswere:

$billion=$million.

18.Asaninitialapproximation,yourreturnequalsthereturnonthesharesminusthetotaloftheexpenseratioandpurchasecosts:

12%%4%=%.

Buttheprecisereturnislessthanthisbecausethe4%loadispaidupfront,notattheendoftheyear.

Topurchasetheshares,youwouldhavehadtoinvest:

$20,000/（1=$20,833.

Thesharesincreaseinvaluefrom$20,000to:

$20,000=$22,160.

Therateofreturnis:

（$22,160$20,833）/$20,833=%.

19.

Assume$1,000investment

Loaded-UpFund

EconomyFund

Yearlygrowth（ris6%）

t=1year

$1,

$1,

t=3years

$1,

$1,

t=10years

$1,

$1,

20.a.

b.Theredemptionof1millionshareswillmostlikelytriggercapitalgainstaxeswhichwilllowertheremainingportfoliobyanamountgreaterthan$10,000,000（implyingaremainingtotalvaluelessthan$440,000,000）.Theoutstandingsharesfallto43millionandtheNAVdropstobelow$10.

21.Supposeyouhave$1,000toinvest.TheinitialinvestmentinClassAsharesis$940netofthefront-endload.Afterfouryears,yourportfoliowillbeworth:

$9404=$1,

ClassBsharesallowyoutoinvestthefull$1,000,butyourinvestmentperformancenetof12b-1feeswillbeonly%,andyouwillpaya1%back-endloadfeeifyousellafterfouryears.Yourportfoliovalueafterfouryearswillbe:

$1,0004=$1,

Afterpayingtheback-endloadfee,yourportfoliovaluewillbe:

$1,.99=$1,

ClassBsharesarethebetterchoiceifyourhorizonisfouryears.

Witha15-yearhorizon,theClassAshareswillbeworth:

$94015=$3,

FortheClassBshares,thereisnoback-endloadinthiscasesincethehorizonisgreaterthanfiveyears.Therefore,thevalueoftheClassBshareswillbe:

$1,00015=$3,

Atthislongerhorizon,ClassBsharesarenolongerthebetterchoice.TheeffectofClassB's%12b-1feesaccumulatesovertimeandfinallyoverwhelmsthe6%loadchargedtoClassAinvestors.

22.a.Aftertwoyears,eachdollarinvestedinafundwitha4%loadandaportfolioreturnequaltorwillgrowto:

$（1+r–2.

EachdollarinvestedinthebankCDwillgrowto:

$1.

Ifthemutualfundistobethebetterinvestment,thentheportfolioreturn（r）mustsatisfy:

（1+r–2>

（1+r–2>

（1+r–2>

1+r–>

1+r>

Therefore:

r>=%

b.Ifyouinvestforsixyears,thentheportfolioreturnmustsatisfy:

（1+r–6>=

（1+r–6>

1+r–>

r>%

Thecutoffrateofreturnislowerforthesix-yearinvestmentbecausethe“fixedcost”（theone-timefront-endload）isspreadoveragreaternumberofyears.

c.Witha12b-1feeinsteadofafront-endload,theportfoliomustearnarateofreturn（r）thatsatisfies:

1+r––>

Inthiscase,rmustexceed%regardlessoftheinvestmenthorizon.

23.Theturnoverrateis50%.Thismeansthat,onaverage,50%oftheportfolioissoldandreplacedwithothersecuritieseachyear.Tradingcostsonthesellordersare%andthebuyorderstoreplacethosesecuritiesentailanother%intradingcosts.Totaltradingcostswillreduceportfolioreturnsby:

2%=%

24.Forthebondfund,thefractionofportfolioincomegivenuptofeesis:

=,or%

Fortheequityfund,thefractionofinvestmentearningsgivenuptofeesis:

=,or%

Feesareamuchhigherfractionofexpectedearningsforthebondfundandthereforemaybeamoreimportantfactorinselectingthebondfund.

Thismayhelptoexplainwhyunmanagedunitinvestmenttrustsareconcentratedinthefixedincomemarket.Theadvantagesofunitinvestmenttrustsarelowturnover,lowtradingcosts,andlowmanagementfees.Thisisamoreimportantconcerntobond-marketinvestors.

25.Supposethatfinishinginthetophalfofallportfoliomanagersispurelyluck,andthattheprobabilityofdoingsoinanyyearisexactly½.Thentheprobabilitythatanyparticularmanagerwouldfinishinthetophalfofthesamplefiveyearsinarowis（½）5=1/32.Wewouldthenexpecttofindthat[350（1/32）]=11managersfinishinthetophalfforeachofthefiveconsecutiveyears.Thisispreciselywhatwefound.Thus,weshouldnotconcludethattheconsistentperformanceafterfiveyearsisproofofskill.Wewouldexpecttofind11managersexhibitingpreciselythislevelof"consistency"evenifperformanceisduesolelytoluck.