投資學(xué)英文完整教學(xué)課件

投資學(xué)英文完整教學(xué)課件投資學(xué)英文完整教學(xué)課件Chapter1TheInvestmentEnvironmentChapter1TheInvestmentEnvir1-3RealAssetsVersusFinancialAssetsRealAssetsDeterminetheproductivecapacityandnetincomeoftheeconomyExamples:Land,buildings,machines,knowledgeusedtoproducegoodsandservicesFinancialAssetsClaimsonrealassets1-3RealAssetsVersusFinancia1-4FinancialAssetsThreetypes:Fixedincomeordebt CommonstockorequityDerivativesecurities1-4FinancialAssetsThreetype1-5FixedIncomePaymentsfixedordeterminedbyaformulaMoneymarketdebt:shortterm,highlymarketable,usuallylowcreditriskCapitalmarketdebt:longtermbonds,canbesafeorrisky1-5FixedIncomePaymentsfixed1-6CommonStockandDerivativesCommonStockisequityorownershipinacorporation.Paymentstostockholdersarenotfixed,butdependonthesuccessofthefirmDerivativesValuederivesfrompricesofothersecurities,suchasstocksandbondsUsedtotransferrisk1-6CommonStockandDerivative1-7FinancialMarketsandtheEconomyInformationRole:CapitalflowstocompanieswithbestprospectsConsumptionTiming:Usesecuritiestostorewealthandtransferconsumptiontothefuture1-7FinancialMarketsandtheE1-8FinancialMarketsandthe

Economy(Ctd.)AllocationofRisk:InvestorscanselectsecuritiesconsistentwiththeirtastesforriskSeparationofOwnershipandManagement:Withstabilitycomesagencyproblems1-8FinancialMarketsandthe

1-9FinancialMarketsandthe

Economy(Ctd.)CorporateGovernanceandCorporateEthicsAccountingScandalsExamples–Enron,RiteAid,HealthSouthAuditors–watchdogsofthefirmsAnalystScandalsArthurAndersenSarbanes-OxleyActTightentherulesofcorporategovernance

1-9FinancialMarketsandthe

1-10TheInvestmentProcessAssetallocationChoiceamongbroadassetclassesSecurityselectionChoiceofwhichsecuritiestoholdwithinassetclassSecurityanalysistovaluesecuritiesanddetermineinvestmentattractiveness1-10TheInvestmentProcessAsse1-11MarketsareCompetitiveRisk-ReturnTrade-OffEfficientMarketsActiveManagementFindingmispricedsecuritiesTimingthemarket1-11MarketsareCompetitiveRis1-12MarketsareCompetitive(Ctd.)PassiveManagementNoattempttofindundervaluedsecuritiesNoattempttotimethemarketHoldingahighlydiversifiedportfolio1-12MarketsareCompetitive(C1-13ThePlayersBusinessFirms–netborrowersHouseholds–netsaversGovernments–canbebothborrowersandsavers

1-13ThePlayersBusinessFirms–1-14ThePlayers(Ctd.)FinancialIntermediaries:PoolandinvestfundsInvestmentCompaniesBanksInsurancecompaniesCreditunions1-14ThePlayers(Ctd.)Financia1-15UniversalBankActivitiesInvestmentBankingUnderwritenewstockandbondissuesSellnewlyissuedsecuritiestopublicintheprimarymarketInvestorstradepreviouslyissuedsecuritiesamongthemselvesinthesecondarymarketsCommercialBankingTakedepositsandmakeloans1-15UniversalBankActivitiesI1-16FinancialCrisisof2008AntecedentsoftheCrisis:“TheGreatModeration”:atimeinwhichtheU.S.hadastableeconomywithlowinterestratesandatamebusinesscyclewithonlymildrecessionsHistoricboominhousingmarket1-16FinancialCrisisof2008An1-17Figure1.3TheCase-ShillerIndexofU.S.HousingPrices1-17Figure1.3TheCase-Shille1-18ChangesinHousingFinanceOldWayLocalthriftinstitutionmademortgageloanstohomeownersThrift’smajorasset:aportfoliooflong-termmortgageloansThrift’smainliability:deposits“Originatetohold”NewWaySecuritization:FannieMaeandFreddieMacboughtmortgageloansandbundledthemintolargepoolsMortgage-backedsecuritiesaretradableclaimsagainsttheunderlyingmortgagepool“Originatetodistribute”1-18ChangesinHousingFinance1-19Figure1.4CashFlowsinaMortgagePass-ThroughSecurity1-19Figure1.4CashFlowsina1-20ChangesinHousingFinance

(Ctd.)Atfirst,FannieMaeandFreddieMacsecuritizedconformingmortgages,whichwerelowerriskandproperlydocumented.Later,privatefirmsbegansecuritizingnonconforming“subprime”

loans

withhigher

defaultrisk.LittleduediligencePlacedhigherdefaultriskoninvestorsGreateruseofARMsand“piggyback”loans1-20ChangesinHousingFinance1-21MortgageDerivativesCollateralizeddebtobligations(CDOs)MortgagepooldividedintoslicesortranchestoconcentratedefaultriskSeniortranches:Lowerrisk,highestratingJuniortranches:Highrisk,loworjunkrating1-21MortgageDerivativesCollat1-22MortgageDerivativesProblem:Ratingswerewrong!Riskwasmuchhigherthananticipated,evenfortheseniortranches1-22MortgageDerivativesProble1-23WhywasCreditRiskUnderestimated?NooneexpectedtheentirehousingmarkettocollapseallatonceGeographicdiversificationdidnotreduceriskasmuchasanticipatedAgencyproblemswithratingagenciesCreditDefaultSwaps(CDS)didnotreduceriskasanticipated1-23WhywasCreditRiskUndere1-24CreditDefaultSwap(CDS)ACDSisaninsurancecontractagainstthedefaultoftheborrowerInvestorsboughtsub-primeloansandusedCDStoinsuretheirsafety1-24CreditDefaultSwap(CDS)A1-25CreditDefaultSwap(CDS)SomebigswapissuersdidnothaveenoughcapitaltobacktheirCDSwhenthemarketcollapsed.Consequence:CDOinsurancefailed1-25CreditDefaultSwap(CDS)S1-26RiseofSystemicRiskSystemicRisk:apotentialbreakdownofthefinancialsysteminwhichproblemsinonemarketspilloveranddisruptothers.OnedefaultmaysetoffachainoffurtherdefaultsWavesofsellingmayoccurinadownwardspiralasassetpricesdropPotentialcontagionfrominstitutiontoinstitution,andfrommarkettomarket1-26RiseofSystemicRiskSyste1-27RiseofSystemic

Risk(Ctd.)Bankshadamismatchbetweenthematurityandliquidityoftheirassetsandliabilities.LiabilitieswereshortandliquidAssetswerelongandilliquidConstantneedtorefinancetheassetportfolioBankswereveryhighlylevered,givingthemalmostnomarginofsafety.1-27RiseofSystemicRisk(Ctd1-28RiseofSystemicRisk(Ctd.)Investorsreliedtoomuchon“creditenhancement”throughstructuredproductslikeCDSCDStradedmostly“overthecounter”,solesstransparent,nopostedmarginrequirementsOpaquelinkagesbetweenfinancialinstrumentsandinstitutions1-28RiseofSystemicRisk(Ctd1-29TheShoeDrops2000-2006:Sharpincreaseinhousingpricescausedmanyinvestorstobelievethatcontinuallyrisinghomepriceswouldbailoutpoorlyperformingloans2004:Interestratesbeganrising2006:Homepricespeaked1-29TheShoeDrops2000-2006:S1-30TheShoeDrops2007:Housingdefaultsandlossesonmortgage-backedsecuritiessurged2007:BearStearnsannouncestroubleatitssubprimemortgage–relatedhedgefunds1-30TheShoeDrops2007:Housin1-31TheShoeDrops2008:TroubledfirmsincludeBearStearns,FannieMae,FreddieMac,MerrillLynch,LehmanBrothers,andAIGMoneymarketbreaksdownCreditmarketsfreezeupFederalbailouttostabilizefinancialsystem1-31TheShoeDrops2008:Troubl1-32SystemicRiskandtheRealEconomyAddliquiditytoreduceinsolvencyriskandbreakaviciouscircleofvaluationrisk/counterpartyrisk/liquidityriskIncreasetransparencyofstructuredproductslikeCDScontractsChangeincentivestodiscourageexcessiverisk-takingandtoreduceagencyproblemsatratingagencies1-32SystemicRiskandtheRealCHAPTER2AssetClassesandFinancialInstrumentsCHAPTER2AssetClassesandFin2-34AssetClassesMoneymarketinstrumentsCapitalmarketinstrumentsBondsEquitySecuritiesDerivativeSecurities2-34AssetClassesMoneymarket2-35TheMoneyMarketSubsectorofthefixed-incomemarket:Securitiesareshort-term,liquid,lowrisk,andoftenhavelargedenominationsMoneymarketmutualfundsallowindividualstoaccessthemoneymarket.2-35TheMoneyMarketSubsector2-36Table2.1MajorComponentsof

theMoneyMarket2-36Table2.1MajorComponents2-37MoneyMarketSecuritiesTreasurybills:Short-termdebtofU.S.governmentBidandaskedpriceBankdiscountmethodCertificatesofDeposit:TimedepositwithabankCommercialPaper:Short-term,unsecureddebtofacompany2-37MoneyMarketSecuritiesTre2-38MoneyMarketSecuritiesBankers’Acceptances:Anordertoabankbyabank’scustomertopayasumofmoneyonafuturedateEurodollars:dollar-denominatedtimedepositsinbanksoutsidetheU.S.ReposandReverses:Short-termloanbackedbygovernmentsecurities.FedFunds:Veryshort-termloansbetweenbanks2-38MoneyMarketSecuritiesBan2-39YieldsonMoneyMarketInstrumentsExceptforTreasurybills,moneymarketsecuritiesarenotfreeofdefaultriskBoththepremiumonbankCDsandtheTEDspreadhaveoftenbecomegreaterduringperiodsoffinancialcrisisDuringthecreditcrisisof2008,thefederalgovernmentofferedinsurancetomoneymarketmutualfundsaftersomefundsexperiencedlosses2-39YieldsonMoneyMarketIns2-40TheBondMarketTreasuryNotesandBondsInflation-ProtectedTreasuryBondsFederalAgencyDebtInternationalBonds2-40TheBondMarketTreasuryNo2-41TheBondMarketMunicipalBondsCorporateBondsMortgagesandMortgage-BackedSecurities2-41TheBondMarketMunicipalB2-42TreasuryNotesandBondsMaturitiesNotes–maturitiesupto10yearsBonds–maturitiesfrom10to30yearsParValue-$1,000InterestpaidsemiannuallyQuotes–percentageofpar2-42TreasuryNotesandBondsMa2-43TheBondMarketInflation-ProtectedTreasuryBondsTIPS:ProvideinflationprotectionFederalAgencyDebtDebtofmortgage-relatedagenciessuchasFannieMaeandFreddieMacInternationalBondsEurobondsandYankeebonds2-43TheBondMarketInflation-P2-44MunicipalBondsIssuedbystateandlocalgovernmentsInterestisexemptfromfederalincometaxandsometimesfromstateandlocaltax2-44MunicipalBondsIssuedbys2-45MunicipalBondsTypesGeneralobligationbonds:BackedbytaxingpowerofissuerRevenuebonds:backedbyproject’srevenuesorbythemunicipalagencyoperatingtheproject.2-45MunicipalBondsTypes2-46Figure2.4Tax-exemptDebtOutstanding2-46Figure2.4Tax-exemptDebt2-47MunicipalBondYieldsTochoosebetweentaxableandtax-exemptbonds,compareafter-taxreturnsoneachbond.Lettequaltheinvestor’smarginaltaxbracketLetrequalthebefore-taxreturnonthetaxablebondandrm

denotethemunicipalbondrate.Ifr(1-t)>rm

thenthetaxablebondgivesahigherreturn;otherwise,themunicipalbondispreferred.2-47MunicipalBondYieldsToch2-48Table2.2Tax-ExemptYieldTableTheequivalenttaxableyieldissimplythetax-freerate,rm,dividedby(1-t).2-48Table2.2Tax-ExemptYield2-49CorporateBondsIssuedbyprivatefirmsSemi-annualinterestpaymentsSubjecttolargerdefaultriskthangovernmentsecuritiesOptionsincorporatebondsCallableConvertible2-49CorporateBondsIssuedbyp2-50ProportionalownershipofamortgagepooloraspecifiedobligationsecuredbyapoolProducedbysecuritizingmortgagesMortgage-backedsecuritiesarecalledpass-throughsbecausethecashflowsproducedbyhomeownerspayingofftheirmortgagesarepassedthroughtoinvestors.Mortgage-BackedSecurities2-50Proportionalownershipof2-51Mortgage-BackedSecuritiesMostmortgage-backedsecuritieswereissuedbyFannieMaeandFreddieMac.Traditionally,pass-throughswerecomprisedofconformingmortgages,whichmetstandardsofcreditworthiness.2-51Mortgage-BackedSecurities2-52Mortgage-BackedSecuritiesEventually,“Private-label”issuerssecuritizedlargeamountsofsubprimemortgages,madetofinanciallyweakborrowers.Finally,FannieandFreddiewereallowedandevenencouragedtobuysubprimemortgagepools.September,2008:FannieandFreddiegottakenoverbythefederalgovernment.2-52Mortgage-BackedSecurities2-53Figure2.6Mortgage-backedsecuritiesoutstanding2-53Figure2.6Mortgage-backed2-54EquitySecuritiesCommonstock:OwnershipResidualclaimLimitedliabilityPreferredstock:PerpetuityFixeddividendsPriorityovercommonTaxtreatmentAmericanDepositoryReceipts2-54EquitySecuritiesCommonst2-55StockMarketIndexesDowJonesIndustrialAverageIncludes30largeblue-chipcorporationsComputedsince1896Price-weightedaverage2-55StockMarketIndexesDowJo2-56Example2.2Price-WeightedAveragePortfolio:Initialvalue$25+$100=$125 Finalvalue$30+$90=$120Percentagechangeinportfoliovalue=5/125=-.04=-4%Index:Initialindexvalue(25+100)/2=62.5 Finalindexvalue(30+90)/2=60 Percentagechangeinindex-2.5/62.5=-.04=-4%2-56Example2.2Price-Weighted2-57S&P500Broadlybasedindexof500firmsMarket-value-weightedindexInvestorscanbasetheirportfoliosonanindex:BuyanindexmutualfundBuyexchangetradedfunds(ETFs)Standard&Poor’sIndexes2-57S&P500Standard&Poor’sI2-58OtherIndexesU.S.IndexesNYSECompositeNASDAQCompositeWilshire5000ForeignIndexesNikkei(Japan)FTSE(U.K.;pronounced“footsie”)DAX(Germany),HangSeng(HongKong)TSX(Canada)2-58OtherIndexesU.S.Indexes2-59DerivativesMarketsOptionsandfuturesprovidepayoffsthatdependonthevaluesofotherassetssuchascommodityprices,bondandstockprices,ormarketindexvalues.Aderivativeisasecuritythatgetsitsvaluefromthevaluesofanotherasset.2-59DerivativesMarketsOptions2-60OptionsCall:Righttobuyunderlyingassetatthestrikeorexerciseprice.ValueofcallsdecreaseasstrikepriceincreasesPut:Righttosellunderlyingassetatthestrikeorexerciseprice.ValueofputsincreasewithstrikepriceValueofbothcallsandputsincreasewithtimeuntilexpiration.2-60OptionsCall:Righttobuy2-61FuturesContractsAfuturescontractcalls

fordeliveryofanasset(orinsomecases,itscashvalue)ataspecifieddeliveryormaturitydateforanagreed-uponprice,calledthefuturesprice,tobepaidatcontractmaturity.Longposition:TakedeliveryatmaturityShortposition:Makedeliveryatmaturity2-61FuturesContractsAfutures2-62ComparisonOptionRight,butnotobligation,tobuyorsell;optionisexercisedonlywhenitisprofitableOptionsmustbepurchasedThepremiumisthepriceoftheoptionitself.FuturesContractObligedtomakeortakedelivery.Longpositionmustbuyatthefuturesprice,shortpositionmustsellatfuturespriceFuturescontractsareenteredintowithoutcost2-62ComparisonOptionRight,butCHAPTER3HowSecuritiesareTradedCHAPTER3HowSecuritiesareTr3-64HowFirmsIssueSecuritiesPrimaryMarketFirmsissuenewsecuritiesthroughunderwritertopublicInvestorsgetnewsecurities;firmgetsfundingSecondaryMarketInvestorstradepreviouslyissuedsecuritiesamongthemselves3-64HowFirmsIssueSecurities3-65HowFirmsIssueSecurities(Ctd.)StocksIPOSeasonedofferingBondsPublicofferingPrivateplacement3-65HowFirmsIssueSecurities3-66

InvestmentBanking

Underwriting:InvestmentbankhelpsthefirmtoissueandmarketnewsecuritiesProspectus:Describestheissueandtheprospectsofthecompany.Redherring3-66

InvestmentBanking

Underw3-67Figure3.1RelationshipAmongaFirmIssuingSecurities,theUnderwriters,andthePublic3-67Figure3.1RelationshipAm3-68InvestmentBankingFirmcommitmentinvestmentbankpurchasessecuritiesfromtheissuingcompanyandthenresellsthemtothepublic.ShelfRegistrationSECRule415:Allowsfirmstoregistersecuritiesandgraduallysellthemtothepublicfortwoyears3-68InvestmentBankingFirmcom3-69InvestmentBanking(Ctd.)PrivateplacementsFirmusesunderwritertosellsecuritiestoasmallgroupofinstitutionalorwealthyinvestors.CheaperthanpublicofferingsPrivateplacementsnottradedinsecondarymarkets3-69InvestmentBanking(Ctd.)P3-70InitialPublicOfferingsProcessRoadshowstopublicizenewofferingBookbuildingtodeterminedemandforthenewissueDegreeofinvestorinterestinthenewofferingprovidesvaluablepricinginformation3-70InitialPublicOfferingsPr3-71Figure3.3Long-termRelativePerformanceofInitialPublicOfferings3-71Figure3.3Long-termRelat3-72HowSecuritiesareTradedTypesofMarkets:DirectsearchBuyersandsellersseekeachotherBrokeredmarketsBrokerssearchoutbuyersandsellers3-72HowSecuritiesareTradedT3-73HowSecuritiesareTradedTypesofMarkets:DealermarketsDealershaveinventoriesofassetsfromwhichtheybuyandsellAuctionmarketstradersconvergeatoneplacetotrade3-73HowSecuritiesareTradedT3-74BidandAskedPricesBidPriceBidsareofferstobuy.Indealermarkets,thebidpriceisthepriceatwhichthedealeriswillingtobuy.Investors“selltothebid”.Bid-Askedspreadistheprofitformakingamarketinasecurity.AskPriceAskedpricesrepresentofferstosell.Indealermarkets,theaskedpriceisthepriceatwhichthedealeriswillingtosell.Investorsmustpaytheaskedpricetobuythesecurity.3-74BidandAskedPricesBidPr3-75TypesofOrdersMarketOrder:ExecutedimmediatelyTraderreceivescurrentmarketpricePrice-contingentOrder:TradersspecifybuyingorsellingpriceAlargeordermaybefilledatmultipleprices3-75TypesofOrdersMarketOrde3-76Figure3.5Price-ContingentOrders3-76Figure3.5Price-Contingen3-77TradingMechanismsDealermarketsElectroniccommunicationnetworks(ECNs)TruetradingsystemsthatcanautomaticallyexecuteordersSpecialistsmarketsmaintaina“fairandorderlymarket”3-77TradingMechanismsDealerm3-78NASDAQListsabout3,200firmsOriginally,NASDAQwasprimarilyadealermarketwithapricequotationsystemToday,NASDAQ’sMarketCenteroffersasophisticatedelectronictradingplatformwithautomatictradeexecution.Largeordersmaystillbenegotiatedthroughbrokersanddealers3-78NASDAQListsabout3,200fi3-79Table3.1PartialRequirementsforListingonNASDAQMarkets3-79Table3.1PartialRequirem3-80NewYorkStockExchangeListsabout2,800firmsAutomaticelectronictradingrunsside-by-sidewithtraditionalbroker/specialistsystemSuperDot:electronicorder-routingsystemDirectPlus:fullyautomatedexecutionforsmallordersSpecialists:Handlelargeordersandmaintainorderlytrading3-80NewYorkStockExchangeLis3-81Table3.2SomeInitialListingRequirementsfortheNYSE3-81Table3.2SomeInitialLis3-82ElectronicCommunicationNetworksECNs:PrivatecomputernetworksthatdirectlylinkbuyerswithsellersforautomatedorderexecutionMajorECNsincludeNASDAQ’sMarketCenter,ArcaEx,DirectEdge,BATS,andLavaFlow.“FlashTrading”:Computerprogramslookforeventhesmallestmispricingopportunityandexecutetradesintinyfractionsofasecond.3-82ElectronicCommunicationN3-83BondTradingMostbondtradingtakesplaceintheOTCmarketamongbonddealers.Marketformanybondissuesis“thin”.NYSEisexpandingitsbond-tradingsystem.NYSEBondsisthelargestcentralizedbondmarketofanyU.S.exchange3-83BondTradingMostbondtrad3-84MarketStructureinOtherCountriesLondon-predominatelyelectronictradingEuronext–marketformedbycombinationoftheParis,AmsterdamandBrusselsexchanges,thenmergedwithNYSETokyoStockExchange3-84MarketStructureinOther3-85GlobalizationandConsolidationofStockMarkets

NYSEmergersandacquisitions:Archipelago(ECN)AmericanStockExchangeEuronextNASDAQmergersandacquisitions:Instinet/INET(ECN)BostonStockExchange3-85GlobalizationandConsolid3-86GlobalizationandConsolidationofStockMarkets

ChicagoMercantileExchangeacquired:ChicagoBoardofTradeNewYorkMercantileExchange3-86GlobalizationandConsolid3-87Figure3.6MarketCapitalizationofMajorWorldStockExchanges,20073-87Figure3.6MarketCapitali3-88TradingCostsBrokerageCommission:feepaidtobrokerformakingthetransactionExplicitcostoftradingFullServicevs.DiscountbrokerageSpread:DifferencebetweenthebidandaskedpricesImplicitcostoftrading3-88TradingCostsBrokerageCom3-89BuyingonMarginBorrowingpartofthetotalpurchasepriceofapositionusingaloanfromabroker.Investorcontributestheremainingportion.Marginreferstothepercentageoramountcontributedbytheinvestor.Youprofitwhenthestockappreciates.3-89BuyingonMarginBorrowing3-90BuyingonMargin(Ctd.)InitialmarginissetbytheFedCurrently50%MaintenancemarginMinimumequitythatmustbekeptinthemarginaccountMargincallifvalueofsecuritiesfallstoomuch3-90BuyingonMargin(Ctd.)Ini3-91MarginTrading:

InitialConditionsExample3.1Shareprice $10060% InitialMargin40% MaintenanceMargin100 SharesPurchasedInitialPositionStock$10,000Borrowed$4,000Equity$6,0003-91MarginTrading:

InitialC3-92MaintenanceMarginExample3.1Stockpricefallsto$70pershareNewPositionStock$7,000 Borrowed$4,000Equity$3,000Margin%=$3,000/$7,000=43%3-92MaintenanceMarginExample3-93MarginCallExample3.2Howfarcanthestockpricefallbeforea

margincall?Letmaintenancemargin=30%Equity=100P-$4000Percentagemargin=(100P-$4,000)

/100P(100P-$4,000)

/100P=0.30Solvetofind:P=$57.14

3-93MarginCallExample3.2How3-94Table3.4IllustrationofBuyingStock

onMargin3-94Table3.4Illustrationof3-95ShortSalesPurpose:toprofitfromadeclineinthepriceofastockorsecurityMechanicsBorrowstockthroughadealerSellitanddepositproceedsandmargininanaccountClosingouttheposition:buythestockandreturntothepartyfromwhichitwasborrowed3-95ShortSalesPurpose:topr3-96ShortSale:

InitialConditionsExample3.3DotBomb 1000Shares50% InitialMargin30% MaintenanceMargin$100 InitialPriceSaleProceeds $100,000Margin&Equity $50,000StockOwed 1000shares3-96ShortSale:

InitialCondit3-97Example3.3(Ctd.)

DotBombfallsto$70pershareAssets$100,000(saleproceeds) $50,000(initialmargin)Liabilities$70,000(buyshares)Equity$80,000Profit=endingequity–beginningequity=$80,000-$50,000=$30,000=declineinsharepricexnumberofsharessoldshort3-97Example3.3(Ctd.)

DotBom3-98ShortSale-MarginCallHowmuchcanthestockpricerisebeforeamargincall? ($150,000*-1000P)/(1000P)=30% P=$115.38*Initialmarginplussaleproceeds

3-98ShortSale-MarginCallHo3-99RegulationofSecuritiesMarketsMajorregulations:SecuritiesActof1933SecuritiesActof1934SecuritiesInvestorProtectionActof1970Self-RegulationFinancialIndustryRegulatoryAuthorityCFAInstitutestandardsofprofessionalconduct3-99RegulationofSecuritiesM3-100RegulationofSecuritiesMarkets(Ctd.)Sarbanes-OxleyActPublicCompanyAccountingOversightBoardIndependentfinancialexpertstoserveonauditcommitteesofboardsofdirectorsCEOsandCFOspersonallycertifyfirms’financialreportsBoardsmusthaveindependentdirectors3-100RegulationofSecurities3-101InsiderTradingOfficers,directors,majorstockholdersmustreportalltransactionsinfirm’sstockInsidersdoexploittheirknowledgeJaffestudy:Insidebuyers>insidesellers=stockdoeswellInsidesellers>insidebuyers=stockdoespoorly3-101InsiderTradingOfficers,CHAPTER4MutualFundsandOtherInvestmentCompaniesCHAPTER4MutualFundsandOthe4-103InvestmentCompaniesPoolfundsofindividualinvestorsandinvestinawiderangeofsecuritiesorotherassets.Servicesprovided:Administration&recordkeepingDiversification&divisibilityProfessionalmanagementReducedtransactioncosts4-103InvestmentCompaniesPool4-104NetAssetValueCalculation: MarketValueofAssets-Liabilities SharesOutstanding4-104NetAssetValueCalculatio4-105TypesofInvestmentCompaniesUnitTrustsFixedportfolioofuniformassetsUnmanagedTotalassetshavedeclinedfrom$105billionin1990to$29billionin20094-105TypesofInvestmentCompa4-106TypesofInvestmentCompaniesManagedInvestmentCompaniesOpen-EndFundissuesnewshareswheninvestorsbuyinandredeemsshareswheninvestorscashoutPricedatNetAssetValue(NAV)4-106TypesofInvestmentCompa4-107TypesofInvestmentCompaniesManagedInvestmentCompaniesClosed-Endnochangeinsharesoutstanding;oldinvestorscashoutbysellingtonewinvestorsPricedatpremiumordiscounttoNAV4-107TypesofInvestmentCompa4-108TypesofInvestmentCompaniesOtherinvestmentorganizationsCommingledfundsREITsHedgeFunds4-108TypesofInvestmentCompa4-109MutualFunds:Open-EndInvestmentCompaniesMoneyMarketEquitySectorBondBalancedAssetAllocationandFlexibleIndexInternational4-109MutualFunds:Open-EndIn4-110Table4.1U.S.MutualFundsbyInvestmentClassification1104-110Table4.1U.S.MutualFun4-111HowFundsAreSoldDirect-marketedfundsSalesforcedistributedRevenuesharingonsalesforcedistributedPotentialconflictsofinterestFinancialSupermarkets4-111HowFundsAreSoldDirect-4-112CostsofInvestinginMutualFundsFeeStructure:FourtypesOperatingexpensesFront-endloadBack-endload12b-1chargeFeesmustbedisclosedintheprospectusShareclasseswithdifferentfeecombinations4-112CostsofInvestinginMut4-113Example4.2:FeesforVariousClasses

(DreyfusWorldwideGrowthFund)4-113Example4.2:FeesforVar4-114FeesandMutualFundReturns:

AnExampleInitialNAV=$20Incomedistributionsof$.15Capitalgaindistributionsof$.05EndingNAV=$20.10:4-114FeesandMutualFundRetu4-115Table4.2ImpactsofCostsonInvestmentPerformance4-115Table4.2ImpactsofCost4-116LateTradingandMarketTimingLatetrading–acceptingbuyorsellordersafterthemarketclosesandNAVisdeterminedMarkettiming–rapidin-and-outtradingonstalenetassetvaluesNeteffectistotransfervaluefromordinaryshareholderstoprivilegedtradersMutualfundspenalizedforimpropertrading.Newrulestopreventthesepractices4-116LateTradingandMarketT4-117TaxationofMutualFundIncomePass-throughstatusundertheU.S.taxcodeTaxesarepaidonlybytheinvestorFundinvestorsdonotcontrolthetimingofthesalesofsecuritiesfromtheportfolioHighportfolioturnoverleadstotaxinefficiencyAverageturnover=