1. Given the fact that Rick has only $15,000 to invest, explain why he should consider investing in mutual funds rather than individual stocks.
2. In what type(s) of stock mutual fund(s) would you recommend Rick invest? Why?
3. In helping Rick make an investment choice, what factors would you explain to him as most important when choosing a mutual fund?
4. Although most mutual funds will provide Rick with some level of diversification, what type of risk will Rick still be exposed to if he purchases a single mutual fund?
5. To assure Rick of the liquidity and marketability of his investment, would you recommend that he invest in an open-end or a closed-end mutual fund? Why?
6. In terms of costs, would you recommend load or no-load funds to Rick? Why?
Rick Phillips has usually been just a market watcher and not a market participant; however, he recently received $15,000 for the movie rights to his new book. Rick has never before had the resources to invest and therefore owns no other security investments, but he has followed several telecom stocks over the past year. The share prices have fluctuated dramatically, but Rick is definitely interested in this type of stock. He feels that wireless telecommunication companies offer great possibilities. When you asked Rick if he was comfortable with the risk associated with such an investment, he indicated that he would be if superior returns could be obtained.