2. What is a key risk of investing in this fund?
a. This fund invests in very speculative, small companies
b. You are guaranteed only a small amount of interest income each year
c. Increases in interest rates can cause the price of the bonds in this fund to lose value
d.
The companies included in this fund are new and emerging
a. This fund invests in very speculative, small companies.
The expense ratio of this fund is $10,000, you would pay __ in fees?
a. 0.01%; $1
b. 0.20%; $20
c. 0,69%; $69
d. 0.09%; $90
therefore, If you had a current balance of
$100,000 in the fund, you would pay $90 in fees.
The answer is d. 0.09%; $90.
To determine the key risk of investing in this fund, we need to analyze the options provided. Let's go through each option:
a. This fund invests in very speculative, small companies: This suggests that the fund focuses on investing in small, risky companies. Investing in such companies carries a higher level of risk compared to established or larger companies. The risk associated with smaller companies is that they may have less stable financials, higher volatility, and a higher probability of failure.
b. You are guaranteed only a small amount of interest income each year: This implies that the fund provides a low level of fixed interest income. If you are relying on steady income generation from your investments, this low-interest income may not meet your financial needs. However, it is important to note that most funds are not specifically designed to provide guaranteed income.
c. Increases in interest rates can cause the price of the bonds in this fund to lose value: This indicates that the fund invests in bonds, and an increase in interest rates may impact the bond prices negatively. When interest rates rise, existing bonds with lower interest rates become less attractive to investors, causing their prices to decrease. This can result in a loss of value for the bonds held by the fund.
d. The companies included in this fund are new and emerging: This implies that the fund invests in new and emerging companies. While these companies may have a potential for high growth, they also carry a significant risk of failure. Newer companies may face challenges related to their business model, competition, or overall market conditions.
Considering the options, the key risk of investing in this fund may be a combination of a and d. Both investing in speculative, small companies and new and emerging companies can expose investors to a higher level of risk. It's important to carefully evaluate these risks before making any investment decision.