...Economics’ Approach to Financial Planning by Laurence J. Kotlikoff, Ph.D. |Executive Summary | |Economists long have shown that when it comes to consuming lifetime economic resources, households seek to neither splurge nor hoard, but | |rather to achieve a smooth living standard over time. Consumption smoothing not only underlies the economics approach to spending and | |saving, it is central to the field’s analysis of insurance decisions and portfolio choice. | |Smoothing a household's living standard requires using a sophisticated mathematical technique called dynamic programming to solve a number | |of difficult and interconnected problems. Advances in dynamic programming coupled with today's computers are permitting economists to move | |from describing financial problems to prescribing financial solutions. | |Conventional planning’s targeted liability approach has some surface similarities to consumption smoothing. But the method used to find | |retirement- and survivor-spending targets is virtually guaranteed to disrupt, rather than smooth, a household’s living standard as it ages.| |Moreover, even very small targeting mistakes will suffice to produce major consumption disruption for the simple reason that the wrong...
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...CHAPTER 1 INTRODUCTION INTRODUCTION Much of the empirical research on mutual funds has not given any significant contribution for the mutual fund investor. Unfortunately many mutual fund investor have probably never heard about these research results or their implications. They have heard some rules of thumb guidelines from their brokers or peers about how to select a particular fund. The purpose of this present study is to identify the selection criteria, investors seem to use in selecting a mutual fund institution that suits the investors investment objective and also to identify the factors that are responsible for the selection of schemes floated by these organisations. Further it attempts to identify the reactions from the respondents' namely mutual fund unit holders of Mysore towards the performance of the different schemes. The researcher has employed interview schedule for the collection of data to elicit views of the Mutual Fund investors. Individuals from all walks of life have been showing increasing participation in the stock market, a place where one can see their money doubling in a period of time or disappearing depending on how they play the game. With the stupendous growth in the capital market, direct investment in the stock market has definitely become next to impossible. And yet investors undertake investments with minimal risks of the working of stock exchanges. But in order that investments prove profitable; investors...
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...Chapter 01 Investments: Background and Issues Multiple Choice Questions 1. Financial assets represent _____ of total assets of U.S. households. A. over 60% B. over 90% C. under 10% D. about 30% 2. Real assets in the economy include all but which one of the following? A. Land B. Buildings C. Consumer durables D. Common stock 3. Net worth represents _____ of the liabilities and net worth of commercial banks. A. about 50% B. about 90% C. about 10% D. about 30% 4. According to the Flow of Funds Accounts of the United States, the largest single asset of U.S. households is ___. A. mutual fund shares B. real estate C. pension reserves D. corporate equity 5. According to the Flow of Funds Accounts of the United States, the largest liability of U.S. households is ________. A. mortgages B. consumer credit C. bank loans D. gambling debts 6. ____ is not a derivative security. A. A share of common stock B. A call option C. A futures contract D. All of the above are derivative securities. 7. According to the Flow of Funds Accounts of the United States, the largest financial asset of U.S. households is ____. A. mutual fund shares B. corporate equity C. pension reserves D. personal trusts 8. Active trading in markets and competition among securities analysts helps ensure that __________. I. security prices approach informational efficiency II. riskier securities are priced to offer higher...
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...Answers to Chapter 17 Questions 1. A mutual fund represents a pool of financial resources obtained from individuals and invested in the money and capital markets. It represents another way for those with extra funds to channel those funds to those in need of extra funds. 2. Investing in mutual funds allows an investor to achieve a greater level of diversification than could likely be achieved by investing in individual stock on one's own account. A single share of a mutual fund could represent ownership in over a thousand different companies. Whereas the investment in the mutual fund might cost one hundred dollars, buying over a thousand individual shares of stock could cost over one hundred thousand dollars. Further, since mutual funds can buy and sell securities in large blocks, its trading cost are much lower than those of the individual investor buying a few shares at a time. 3. Money market mutual funds (MMMFs) invest in assets that have maturities of less than one year. These assets primarily are Treasury bills, negotiable certificates of deposit, repurchase agreements, and commercial paper. The growth in MMMFs during the late 1970s and early 1980s occurred because of rising interest rates in the money markets while rates in depository institutions were restricted by Regulation Q. Many investors moved their short-term savings from the depository institutions to the MMMFs as the spread in the earnings rate reached double digits. 4. Long-term mutual funds primarily...
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...1.8 REVIEW OF LITERATURE A Literature review is a body of text that aims to review the critical points of current knowledge on a particular topic. Most often associated with science-oriented literature, such as a thesis, the literature review usually precedes a research proposal, methodology and results section. Its ultimate goal is to bring the reader up to date with current literature on a topic and forms the basis for another goal, such as the justification for future research in the area. A good literature review is characterized by: a logical flow of ideas; current and relevant references with consistent, appropriate referencing style; proper use of terminology; and an unbiased and comprehensive view of the previous research on the topic. Here we discuss on different reviews related to the following: 2.1 Investors and Investment 2.2 Mutual funds 2.3 Investors Attitude towards Mutual Fund 2.1 Investors and Investments Investors in emerging markets say that they look at market volatility as a good opportunity to increase the level of risk in their portfolio. On the other hand those in the developed markets say that volatility would make them go for an increased allocation in cash and exercise increased caution with regard to investment. “Investors increasing allocation of cash is not because their ability to bear that risk has been impacted”, says Bansal. [1] JOHN C. BOGLE [2] the former CEO of Vangaurd Group Of...
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...% | In Million | Youth | 0.05 | 4 | Young | 0.19 | 15.2 | Middle | 0.25 | 20 | Senior | 0.36 | 28.8 | Elderly | 0.15 | 12 | Situational Analysis: Consumer Market | | In million | Total Households | 100 | Present Market Sales | 15 | Projected Mkt Sales Over 10 Years with Mrktng Activities | 40 | | | Market % Growth over year | 11.5 | Age | Youth | 15-24 | Young | 25-34 | Middle | 35-44 | Senior | 45-64 | Elderly | 65+ | Potential Segments | Age | Income | Household | >10 | >20K | Households With Children | <35 | | | | | | In Million | Total Households | 100 | Percentage of Households > 20K | 80 | Percentage of Households <20K | 20 | Households Types | Non family | Family With Children | Family Without Children | Age Group | In % | In Millions | Age Group | In % | In Millions | Age Group | In % | In Millions | Youth | 0.04 | 1.14 | Youth | 0.06 | 1.14 | Youth | 0.06 | 1.71 | Young | 0.14 | 3.4 | Young | 0.29 | 7.2 | Young | 0.18 | 4.4 | Middle | 0.15 | 3.7 | Middle | 0.43 | 10.6 | Middle | 0.23 | 5.6 | Senior | 0.29 | 10 | Senior | 0.22 | 7.6 | Senior | 0.32 | 11.1 | Elderly | 0.38 | 7.7 | Elderly | 0 | 0 | Elderly | 0.21 | 4.2 | Segment Vs Purchase Profile by Household type | | Youth | Sports | Standard | Youth | 0.2 | 0.18 | 0.07 | Young | 0.27 | 0.56 | 0.53 | Middle Age | 0.51 | 0.15 | 0.3 | Senior | 0.02 | 0.11 | 0.1 | Characteristics of different Segments...
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...*** 2. Investing Fundamentals First Budget: Investing in Stocks: ********************************************************************************************************** 3. The Garners' take-home pay is over $4,500 a month. Yet, after all expenses are paid, there is only a $220 surplus each month. Based on the information presented in this case, what expenses, if any, seem out of line and could be reduced to increase the surplus...
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...manufacturing facilities in which various household cleaning products are manufactured and sold to retail stores. Polluter has a certain emission allowances for each year that are classified as intangible assets. Because it anticipates a need for additional emission allowances for the years 2010 – 2014, it purchased $3 million in emissions credits from Clean Air Corp. on April 2, 2010. A complete renovation of its facilities will be completed by 2014, at which point in time Polluter expects to have additional emission allowance that it does not need. Therefore, to offset the cost of having to purchase emissions credits until the renovations are complete, Polluter sold $2 million worth of future emissions credits to Dirty Chemical Corp. The question of how to account for these transactions in the statement of cash flows has been raised. This memo discusses and evaluates the relevant options. Definitions Accounting Standards Codification 230-10 Statement of Cash Flows 230-10-20 Glossary Financing Activities Financing activities include obtaining resources from owners and providing them with a return on, and a return of, their investment; receiving restricted resources that by donor stipulation must be used for long-term purposes; borrowing money and repaying amounts borrowed, or otherwise settling the obligation; and obtaining and paying for other resources obtained from creditors on long-term credit. Investing Activities Investing activities include making and collecting...
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...S. agency bonds are E. Derivatives and U.S. agency bonds are 6. Financial assets A. directly contribute to the country's productive capacity. B. indirectly contribute to the country's productive capacity. C. contribute to the country's productive capacity both directly and indirectly. D. do not contribute to the country's productive capacity either directly or indirectly. E. are of no value to anyone. 7. In 2012, ____________ was the most significant real asset of U.S. households in terms of total value. A. consumer durables B. automobiles C. real estate D. mutual fund shares E. bank loans 8. In 2012, ____________ was the least significant financial asset of U.S. households in terms of total value. A. real estate B. mutual fund shares C. debt securities D. life insurance reserves E. pension reserves 9. In 2012, ____________ was the most significant financial asset of U.S. households in terms of total value. A. real estate B. mutual fund shares C. debt securities D. life insurance reserves E. pension reserves 10. In 2012,...
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...FINC20006 ORGANISATIONAL FINANCE TERM 1 2014 FINC20006 ORGANISATIONAL FINANCE TERM 1 2014 Assestment task 2 Bisweek Online Services Lect /Tute: Kate Wylie Due date: 10 April, 2014 Assestment task 2 Bisweek Online Services Lect /Tute: Kate Wylie Due date: 10 April, 2014 Yi Zhuojun Student number: s0248180 Diana Carolina lopez Student number: s0255675 Yi Zhuojun Student number: s0248180 Diana Carolina lopez Student number: s0255675 Question 1 If the handout from government is put in a special bank savings account with 6% p.a interest compounded yearly and it will be deposited in that account for average 20 years. Thus, the amount of money at the average person’s retirement age will be the future value of the current $10,000 with 6% p.a interest compounded yearly. n is the average years for the handout sitting in the bank savings account and generating interests. i is the interest rate, which is 6% p.a in this investment. PV is the present value of the handout, which is $10,000. FV is the future value of this handout after 20years. n=64-44=20 FV=PV(1+i)n=10,000(1+0.06)20=32,071.35 In short, if this handout from the government is put in a special bank savings account with 6% p.a. interest compounded yearly, it will grow to $32,071.35 in 20 years. Question 2 If the handout from government is put into the sharemarket for 20 years with average return of 12% p.a, the amount at the average person’s retirement age will be much...
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...In the United States, a society plagued by capitalism, investing has become a way of life. To most Americans it begins with opening a savings account and slowly allowing that money to grow through the compounded interest rate over the years. While it may not seem like a big step in generating more income, nonetheless, this is a positive movement in the market of investments. With the many types of investments available knowing which are reliable, or safe, or yield good returns, are just some of the questions on the investors mind. Within each asset class there are investments to suit different kinds of risk, duration, returns and liquidity. Bank savings account, as stated before, is the simplest kind of short-term investment. The returns on savings account are low when compared to other investments, but the returns are guaranteed by the supplier, in this case the bank. Banks offer security meaning if a bank was to go broke the federal government through the FDIC (Federal Deposit Insurance Corporation) insures your bank deposits of up to $100,000. Having guaranteed returns means an investment will not lose its value in the short term unlike other investments. The bank pays interest to you account for saving your money with them. Bank fixed term investment also known as certificate of deposit is when you deposit a sum amount of money for a set period usually three, six or twelve months. The money becomes locked away for the fixed term but, in return, you get a higher interest...
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...18. 19. 20. 21. The purpose of the financial system is to bring savers and borrowers together. Businesses are never deficit spending units (DSUs). A financial claim is an “IOU” from a deficit spending unit. Investment bankers help deficit spending units (DSUs) bring new primary security issues to market. Deposits in a credit union by a household are an example of direct finance. When a surplus spending units (SSU) owns a financial claim created by financial intermediation, its residual claim is against a deficit spending units (DSU). Assets of financial intermediaries include direct financial claims only. Finance companies take small consumer deposits and make large consumer loans. Liabilities of financial intermediaries are indirect financial claims. Direct finance requires a more or less exact match of preferences. There must be an equal number of DSUs and surplus spending units ( SSUs) in a period. Every financial claim appears on two balance sheets. Without a financial sector, real investment must be financed internally by the deficit spending unit. Depository intermediaries issue claims that are for the most part highly liquid. A household is a surplus spending units when income for the period exceeds spending. A surplus spending units surplus spending unit (SSU) must hold a claim until its scheduled maturity. Financial claims or securities are written for the mutual benefit of both SSU and DSU. Deficit spending units (DSUs) and surplus spending units (SSUs) always have some...
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...Internet Questions Calculate the percentage change in the Shares of Household Income of Quintiles between 1968 and 1998 based on the last table on the page. Notice the dates are in reverse chronological order. Why do you think it has changed in the manner it has? From 1968 to 1998 the percentage change in Shares of Household Income of Quintiles was a steady decline, with the exception of 1997. It was a .06 increase over the 30 years. Bradley Schiller states that “permanent inequality is more the exception more than the rule in the US economy”. I interpret that as saying that the rich will get richer as the poor will get poorer as we talk about the distribution of income. From 1968 to 1998 the economy and work force has changed dramatically. We are now a nation of services/technology rather than a nation of intense labor. The United States capital means allows this nation to produce more without having to dish out a lot of money to workers (lower quintiles);as hard labor is constantly reduced by technology. The United States as a nation, distributes goods throughout the world versus just our countryside, unlike the 1960’s. With such capital advantages we produce more; with less workers and appeal to more persons. This allows the owners/top business to collect more money; hence the growth of separation between the lowest quintile and the highest quintile. What is the current level of the U.S. public debt? Who is the Concord Coalition? How do you think this debt affects...
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...Written Assignment 1. Consumer sovereignty is the authority of consumers to determine what is produced through their purchases of goods and services and that dictates what goods and services will be produced. The consumer receives the goods and services. 2. The private sector is made up of households, business firms, and the international firms and consumers. The public sector refers to activity by the various levels of government. Households are one or more persons occupying a unit of housing. A business firm is a business organization controlled by a single management. The international sector is foreign buyers and sellers who have a significant effect on economic conditions in the U.S. The Government sector (Public) is all of the government entities from federal, state, and local. All of the government’s activities could potentially affect individuals. The public sector spends the most and the private sector spends the least. The group that is volatile is the households in the private sector. The reason for this is that the consumers ultimately decide what goods and services they will use or purchase. 3. The term trade deficit means that we import more in our country than export. It is said to be negative because we have purchased more goods than we have exported or sold so our budget is negative. 4. Country A net exports is 9 million Country B net exports is -3million and County C net exports are -6 million Country A has a trade surplus and Countries...
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...Midterm 1 WQ08 Midterm 1 WQ08 KEY |1. |Financial intermediaries specialize in the production of money. | FALSE |2. |The brokerage function of an FI reduces transaction and information costs between a corporation and individual which encourages a lower rate of savings | | |than would otherwise exist. | FALSE |3. |Privately placed bonds and equity can be traded on the secondary market because of amendments to Regulation 144A. | TRUE |4. |Negotiable certificates of deposits are distinguished from fixed time deposits by their negotiability and active trading in the secondary markets. | TRUE |5. |The securitization of mortgages involves the pooling of mortgage loans for sale in the financial markets. | TRUE |6. |In recent years, the number of commercial banks in the U.S. has been increasing. | FALSE |7. |The credit union industry avoided much of the financial distress of the 1980s because of the short maturity and relatively less credit risk of their | | |assets. ...
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