The Sampsons learn that many corporate bonds have recently been downgraded due to questionable financial statements. However, the Sampsons are not concerned, since the corporate bond they are considering is highly rated. Explain the possible impact of a downgrade of the corporate bond to the Sampsons, given their financial goals.
Answer to relevant QuestionsWhat are mutual funds? What two broad categories of mutual funds exist, and how are they different? Do investors select the securities the mutual fund invests in? Is a stock mutual fund’s past performance necessarily an indicator of future performance? What type of risk affects all stock mutual funds? Describe the tradeoff between the expected return and risk of stock funds. Discuss diversification among mutual funds. Describe some strategies that make diversification more effective. What is a mutual fund supermarket? If Hope (from problem 1) had invested the same amount of money in a no load fund with the same price per share, how many shares could she have purchased? What types of mutual funds should the Sampsons consider, given their investment objective?
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