closed-end

Examples of closed-end in the following topics:

• Investment Institutions

  • Mutual fund companies have different strategies and characteristics, and well-known mutual fund companies include Fidelity, Vanguard, and Dreyfus.Mutual fund companies develop strategies where they only buy stock in certain industries, large companies, or foreign company's stock.Furthermore, the mutual fund company may issue a fixed number of shares to the fund that we call closed-end mutual funds.Then investors may buy and sell these shares inover-the-counter markets, just like stock.Thus, the mutual fund company does not buy its shares back for closed-end mutual funds.A mutual fund company may offer another alternative called open-ended mutual funds.Mutual fund company can buy back shares to the fund, and the price of the shares becomes tied to the value of the stock in the fund.Finally, the mutual fund managers use two methods to earn profits.First, fund managers charge management fees for no-load funds, usually 0.5% of asset value.For the second method, the fund managers charge a commission for selling or purchasing of shares for load funds.The load reflects the commission that lowers the fund's value.

• Market Actors

  • There are three types of U.S. mutual funds: open-end, unit investment trust, and closed-end.
  • The most common type, the open-end mutual fund, must be willing to buy back its shares from its investors at the end of every business day.
  • Exchange-traded funds are open-end funds or unit investment trusts that trade on an exchange.
  • Open-end funds are most common, but exchange-traded funds have been gaining in popularity.
  • An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day.

• Types of Exchange Hedges: Forward, Money Market, and Future

  • In order to collect or pay any overnight interest due on these foreign balances, at the end of every day institutions will close out any foreign balances and re-institute them for the following day.

• Variance

  • Stocks are on the opposite end of the spectrum, going back and forth between red and black from year to year frequently, but over longer periods of time they usually pay higher premiums.
  • We did some math and ended up using the two blue columns to get the yellow one.
  • The small number comes from the TC scenario where the stock returns 10%, which is very close to our expectation of 9.25%.
  • There will only be one result in this case and at the end of it, you have to make a down payment on a house.
  • There is also a 15% chance that the year ends up being wicked bogus (WB), and if that is the case you will lose 20% or $4,000 of your initial investment.

• Payments

  • Mailing checks from locations not close to customers.
  • By using a credit card, you will receive a bill at the end of the month payable in 30 days.

• Corporate Fraud

  • The Enron managers invested in many power plants around the world, and some of its investments soured and failed.Then, they created off-balance sheet companies, and they sold its bad investments to its SPEs.Afterwards, their balance sheet appeared financially strong, and Enron applied for more bank loans, gaining more cash.Next, the Enron management bought more companies, and they repeated the process.At the end, Enron hid $25 billion in debt from its investors.
  • The U.S. economy rebounded from the strong, overly optimistic real estate market.Everyone forgot Enron's misdeeds until the 2007 Great Recession, when the scale of fraud became much larger.For example, Lehman Brothers used exotic securities such as credit default swaps and collateralized debt obligations to buy real estate (Discussed in Chapter 18).After the recession had struck, unemployment doubled, and many households started defaulting on theirmortgages.Commercial and investment banks stopped lending overnight, and real estate prices began tumbling.Unfortunately, Lehman Brothers went on a spending spree, buying real estate toward the peak of the housing bubble.It held $768 billion in bank and bond debt while it had $639 billion in assets that dropped rapidly as real estate prices fell.Lehman Brothers filed for bankruptcy in 2008 and had closed its doors after 158 years of business.

• Time Lags and Targets

  • Thus, a government knows the economy is in a recession by the end of the third quarter.
  • However, the U.S. economy is faltering and sputtering still in 2013, even with a discount rate close to zero!

• Bond Prices in an Open Economy

  • Previous supply-demand examples viewed the bond market as a closed economy.
  • A closed economy has no financial transactions with other countries because the country does not allow money and goods to flow across its borders.
  • If a country were a closed, small economy, the loanable funds market would be atequilibrium.
  • If this country were a closed economy, subsequently, the market would have a surplus, and market forces would lower the real interest rate to 5%.
  • If this country were closed, then the loanable funds market would cause a shortage, and market forces would increase the real interest rate.

• Calculating Perpetuities

  • Perpetuities are a special type of annuity; a perpetuity is an annuity that has no end, or a stream of cash payments that continues forever.
  • Essentially, they are ordinary annuities, but have no end date.
  • Since there is no end date, the annuity formulas we have explored don't apply here.
  • There is no end date, so there is no future value formula.

• Dollar Returns

  • The dollar return of a security is the difference between the initial and ending value.
  • At the end of year 1, it is worth $105, which is $5 more than $100 (its value at the beginning of year 1), so the dollar return is $5.
  • The capital value at the end of year 2 is $110.25, which is $5.25 more than at the end of year 1, and $10.25 more than at the beginning of year 1.