Dr. Jack Wolfe, a finance professor with the University of Tulsa asked his students to identify differences between a pension fund and a growth mutual fund. Kelly Musch, a student in Wolfes class, turned in a paper with two statements:
| Statement 1: | The pension fund is likely to have more flexibility to significantly change its asset allocation.
| | Statement 2: | The pension fund could invest in the mutual fund, but the mutual fund could not invest in the pension fund. |
When grading Muschs paper, Dr. Wolfe should:
A) | agree with Statement 1 and Statement 2. |
| | B) | disagree with Statement 1 and Statement 2. |
| | C) | agree with Statement 1, but disagree with Statement 2. |
| | D) | disagree with Statement 1, but agree with Statement 2. |
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Answer and Explanation
When grading the paper, Dr. Wolfe should agree with both of Muschs statements. Musch has indirectly hit on the two key differences between a mutual fund (investment company) and other types of institutional investors such as pension funds. The pension plan uses its own assets to meet various funding requirements while the mutual fund invests money pooled from investors based on advertised objectives and constraints. It would be relatively easy for the pension fund to have a meeting and decide to adjust its asset allocation, while the growth mutual fund, which advertises its objectives in a prospectus would likely have to change the prospectus that governed the objective of the fund and possibly hold a shareholder proxy vote. Statement 2 is also correct. The mutual fund invests funds on behalf of other investors, while the pension fund is part of a company. Since the pension is an investor itself, the pension fund could invest in the mutual fund, but the mutual fund could not invest in the pension.
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发表于 2008-9-17 14:56
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