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Question 2-21I

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Essentials Of Investments
Found in: Page 51
Essentials Of Investments

Essentials Of Investments

Book edition 9th
Author(s) Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus
Pages 748 pages
ISBN 9780078034695

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Short Answer

What problems would confront a mutual fund trying to create an index fund tied to an equally weighted index of a broad stock market?

A mutual fund trying to create an index fund would require a lot of readjustments.

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Step by Step Solution

Definition

A mutual fund company pools money from investors to invest in securities such as stocks, bonds and short term debits. On the other hand, an index fund is a kind of an exchange fund that tracks the returns of a market.

Explanation

Creating an index fund tied to a stock market, would require a lot of readjustments. This would be necessitated by the fluctuating nature of stock price that would bring the fund asset allocation out of balance.

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