Question one
The title of the article is, “obstacles for the young investors.” The writer of the article is well suited to write this article since he brings to the surface the hurdles that pushes the young generation to the wall when it comes to investing. The writer is in a better position to explain to her daughter how investing [in young age can be beneficial and as well as be forced to challenges.
The mutual fund business had a tendency to treat the small business and new investors in contempt. The young investors were charged high costs without regard that their interest in the business could generate massive profits.
At some point the daughter is skeptical and does not see the need to invest while young but the dad is very accurate to explain for her daughter. The writer of the article brings clear all the challenges that face young investors. The young investors had to pay high expenses so that they could start investing. In places where they were asked for lower minimums, higher expenses were substantiated in the total returns.
Question two
The writer brought about the concept of the stock-market decline. This came about due to the tendency to treat the young investors and small business in biased levels. This is of interest to a finance audience since the decline lead to the loss of wealth. The behavior of the crowd affects the economic events in a negative way. The stock market decline can lead to an upsurge rise in the stock prices.
Stock market index is also important since it’s used to measure the value that presents in the section in the market. Investors use it in describing the market and in comparison of the return that appears on all specific investments.
Question three
The article has given a clear insight on the stock valuation whereby, the father is attempting to calculate the theoretical value for her daughter. The main reason for this valuation is to determine the future and potential market price for her daughter’s investment. As a result, the stock market declined as an indication of how mutual fund mistreats the young investors.
However, the article stipulates the risk concept that might be anticipate by the daughter. There are uncertainties in future that may reduce the future value of her investment. For instance, the daughter is worried about the inflation in future. She is worried about what is the real value she will pay after inflation.
The market and portfolio theory are also analyzed in the article. There are different forms of market that are mentioned in the article, which include stock market, money market and the general market. The article reveals how the daughter is able to access capital and acquire the company ownership with regard to the future performance of the preferred mutual fund institution. The daughter is aiming to invest in different stock market institutions such as Schwab, T, Rowe price, and the Vanguard Funds with regard of the expense she will incur. The fundamental reason is to spread the risks in the stock market.
Question four
FV = PV X (1+r)n
Where FV is the future value, PV is the present value, r is the rate of return, and n is the number of years.
Therefore, the future value in the Vanguard fund is as follows
PV = $1,500
r = 0.08
n = 30
FV = $1,500 X (1 + 0.08)30
= $15,093.98
Since all the funding institutions have the same rate of interest, the future value for all institution must be equal. However, after deducting expenses, the value differs as follows.
Vanguard = 15,093.98 - 257
= $14,836.98
Schwab = 15.093.98 - 842
=14,251.98
T. Rowe Price = 15,093.98 – 652
=14,441.98
References
Obstacles for Young Investors - WSJ.com. (n.d.). The Wall Street Journal - Breaking News, Business, Financial and Economic News, World News & Video - Wall Street Journal - Wsj.com. Retrieved from http://online.wsj.com/article/SB123430994081070475.html
Amenc, N.; Goltz, F.; Le Sourd, V. (2006). Assessing the Quality of Stock Market Indices. EDHEC Publication.
