Understanding Different Types of Market Participants and Transactions
Akihiko’s Forecasting Model
Akihiko has designed a sophisticated forecasting model, which predicts the movements in the overall stock market, in the hope of earning a return in excess of a fair return for the risk involved. He uses the predictions of the model to decide whether to buy, hold, or sell the shares of an index fund that aims to replicate the movements of the stock market. Takabe would best be characterized as an information-motivated trader.
James Beach’s Investment Strategy
James Beach
Read MoreUnderstanding Bond Valuation and Yield to Maturity
Chapter 6 Homework
1. Default Risk Premium
The default risk premium is that portion of a nominal interest rate or bond yield that represents compensation for the possibility of nonpayment by the bond issuer.
2. Bond Pricing at Par
A bond with a 5 percent coupon that pays interest semiannually and is priced at par will have a market price of $1,000 and interest payments in the amount of $25 each.
3. Bond Selling at a Premium
All else constant, a coupon bond that is selling at a premium must have a yield
Read MoreUnderstanding Mutual Funds: Types and How They Work
What Are Mutual Funds?
Mutual funds pool funds from several investors and invest in a diversified portfolio of securities. These professionally managed funds offer a way for individuals to invest in a variety of assets, including stocks, bonds, and money market instruments.
Mutual fund investing offers instant diversification, and the fund’s holdings help mitigate risks. In India, mutual funds are regulated, which makes them transparent and highly popular with new and experienced investors.