The following questions are about mutual funds:
i. What are index funds?
ii. What is an expense ratio? How do expense ratios affect the value of an investor's portfolio?
i. An index fund is a mutual fund that is passively managed, which means that the mutual fund manager simply tries to track the return of an index, like the Standard & Poor's 500 stock index.
A-head: INVESTMENT ACCOUNTS
Concept:Mutual funds
ii. Expense ratios are annual fees charged by mutual funds in order to pay mutual fund managers and to pay other record-keeping and marketing costs of the fund. Expense ratios make a very big difference in the long-run performance of investments. Paying an annual fee of even 1 percent will reduce the annual rate of return on the investment from say, 10 percent to 10 – 1 = 9 percent.
A-head: INVESTMENT ACCOUNTS; CHOICE AND CONSEQUENCE: OVERLOOKING FEES
Concept: Expense ratios
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Which of the following questions would not be studied by a microeconomist but would be studied by a macroeconomist?
a. Why do national economies grow? b. What percentage of consumer income is spent on entertainment? c. Why do workers prefer the 4-day workweek? d. How is the electric industry harmed by the passage of new clean air legislation?
Which of the following statements is TRUE of external costs?
A) External costs should not be corrected since people will bear the costs whether they are corrected or not. B) There are no good ways to correct for the external costs. C) When external costs exist, the price of the good will be deceptively low leading to an overallocation of resources. D) External costs should only be corrected for if the correction will not increase the market price.