Do manual funds generally provide efficient diversification? What is the basic d

Question

Do manual funds generally provide efficient diversification?

What is the basic difference between a closed-end fund and an open-end fund?

Why might there be some potential danger in investing in sector funds?

Are earnings of mutual funds normally taxed at the fund level or the shareholder level?

The Twentry-First Century closed-end fund has $350 million in securities, $8 million in liabilities, and 20 million shares outstanding. It trades at a 10 percent discount from net asset value.
a. What is the net asset value of the fund?
b. What is the current price of the fund?
c. Suggest two reasons why the fund may be trading at a discount from net asset value.


Under dollar-cost averaging, an investor will purchase $6,000 worth of stock each year for three years. The stock price is $40 in year 1, $30 in year 2, and $48 in year 3.
a. Compute the average price per share.
b. Compute the average cost per share.
c. Explain why the average cost is less than the average price.

Explanation / Answer

->yes,manual funds generally provide efficient diversification ->An open end mutual fund generally continues to accept investment after the fund is started. As this happens, the fund can grow larger as more investors buy shares in the fund. The open end fund then takes those new dollars and buys additional securities. Shares are priced at the end of day by taking the value of the fund's net asset value divided by the number of shares outstanding. Each share is thus priced at par value to the underlying investments in the fund. To "cash-out" of one's investment, the shares are redeemed by the fund itself, usually after trading is over for the day at the net asset value price for that day. Occasionally, if management of an open end fund feel cash is flowing into the fund to quickly, they may close the fund to new investment, but is still classified as an open end fund. A closed end mutual fund generally accepts investment only during initial setup. After that, shares in the fund are bought and sold similar to a stock on one of the exchanges. The shares may sell at a discount or a premium to the underlying securities owned by the fund, depending on the market. To "cash-out", an investor sells the shares on the exchange at the market price during the trading day. The fund itself is not involved in the day-to-day sale and purchase of fund shares.

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