Fabozzi 金融市场 课后答案.doc

CHAPTER 7 INVESTMENT COMPANIES AND EXCHANGE-TRADED FUNDS TYPE OF INVESTMENT COMPANIES Open-End Funds (Mutual Funds) More popularly known as mutual funds. As open-end funds they stand ready to buy and redeem shares at a price based on net asset value, which is total asset value less liabilities. Prices are quoted on a bid/offer basis. For a no-load fund the bid/offer prices will be the same. The net asset value (NAV) per share equals the market value of the portfolio minus the liabilities of the mutual fund divided by the number of shares owned by the mutual fund investors. There are several important characteristics of open-end or mutual fund. First, investors in mutual funds own a pro rata share of the overall portfolio. Second, the investment manager actively manages the portfolio. Third, the share price is the NAV. Fourth, the NAV is determined only once each day, at the close of the day. In the case of a load fund the offer price will exceed the bid price by the amount of a sales commission charged upon purchases of shares. Some funds have back-end loads, wherein commissions are charged upon redemption of funds within a few years. Others, known as Section 12b-1 funds, charge a small percentage of assets annually to cover sales costs. In any case, all funds earn small percentage annual fees to cover administrative costs. These funds comprise the third largest group of financial institutions, behind banks and insurance companies. Closed-End Funds These funds issue a limited number of shares and are very similar to shares of common stock. They are then sold on the open market like other securities. Investors pay a broker’s commission. The NAV of closed-ended funds is determined by supply and demand. The market price of these shares may thus differ from net asset value, often at a discount from it. The discount results from large tax liabilities on capital gains that swell the net asset value, while investors are pricing future after-tax distribution