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.
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.
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.
For each transaction, identify the real and/or financial assets that trade hands. Are any financial assets created or destroyed in the transaction?
a. Toyota takes out a bank loan to finance the construction of a new factory.
b. Toyota pays off its loan.
c. Toyota uses $10 million of cash on hand to purchase additional inventory of spare auto parts.
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