Assignment 6 fin 321
Assignment 6 FIN321 Winter 2015
Using a Broker - Buying on Margin - Selling Short
1. Your friend Joe will begin saving for his retirement after he graduates in December. He is trying to decide whether he will employ the services of an investment company or build his own portfolio. Which do you think Joe ought to do? You know him as well as anybody! Explain to Joe why he ought to follow the path that you recommend. (Please talk directly to Joe!)
Joe, you should invest your retirement savings into an investment company by choosing the right index fund. By that, I mean you should consider choosing low cost index funds, with lower expense ratios. Index funds have low internal trading expenses. When you buy an index fund, you know what you’re getting, the performance of an index. The index fund manager’s job isn't to scour the world for good stock picks but simply to mirror the index. This is likely to bring above than average returns in the long-run. I don't know how much you intend to invest Joe, but if you're thinking of smaller investments in order to start saving mutual funds offer easy access for beginner investors like you with the plus of diversification. Stocks, on the other hand are more complex and require more of your time, effort, study and knowledge. I am not trying to tell you that you're incapable of investing on your own Joe, but if I were you, I would wait until you have more experience in the market and maybe you will be able to plan a strategy that can "beat" the market with your own portfolio in the future. Mutual funds won't require as much effort for you and still bring you returns, you can focus and put your time on other things such as your job prospective and career goals, and later on decide whether you want to invest on your own.
2. The price of Exxon on January 2, 2013 was $89.97 a share. The price of Exxon on January 2, 2014 was $99.75 a share. Exxon paid dividends of $2.46 per share during the year. What return would you
Using a Broker - Buying on Margin - Selling Short
1. Your friend Joe will begin saving for his retirement after he graduates in December. He is trying to decide whether he will employ the services of an investment company or build his own portfolio. Which do you think Joe ought to do? You know him as well as anybody! Explain to Joe why he ought to follow the path that you recommend. (Please talk directly to Joe!)
Joe, you should invest your retirement savings into an investment company by choosing the right index fund. By that, I mean you should consider choosing low cost index funds, with lower expense ratios. Index funds have low internal trading expenses. When you buy an index fund, you know what you’re getting, the performance of an index. The index fund manager’s job isn't to scour the world for good stock picks but simply to mirror the index. This is likely to bring above than average returns in the long-run. I don't know how much you intend to invest Joe, but if you're thinking of smaller investments in order to start saving mutual funds offer easy access for beginner investors like you with the plus of diversification. Stocks, on the other hand are more complex and require more of your time, effort, study and knowledge. I am not trying to tell you that you're incapable of investing on your own Joe, but if I were you, I would wait until you have more experience in the market and maybe you will be able to plan a strategy that can "beat" the market with your own portfolio in the future. Mutual funds won't require as much effort for you and still bring you returns, you can focus and put your time on other things such as your job prospective and career goals, and later on decide whether you want to invest on your own.
2. The price of Exxon on January 2, 2013 was $89.97 a share. The price of Exxon on January 2, 2014 was $99.75 a share. Exxon paid dividends of $2.46 per share during the year. What return would you