What are the fundamental factors that determine the price of stocks?
Fundamental Factors. In an efficient market, stock prices would be determined primarily by fundamentals, which, at the basic level, refer to a combination of two things: An earnings base, such as earnings per share (EPS) A valuation multiple, such as a P/E ratio.
What determines the price of shares in a mutual fund?
The price of its shares is determined by supply and demand, by the value of stocks in the portfolio, and by investor expectations. Which of the following is correct for a closed-end fund?
What determines stock prices in an efficient market?
In an efficient market, stock prices would be determined primarily by fundamentals, which, at the basic level, refer to a combination of two things: An owner of common stock has a claim on earnings, and earnings per share (EPS) is the owner's return on their investment.
What is the difference between supply and demand in financial markets?
In financial markets, those who supply financial capital through saving expect to receive a rate of return, while those who demand financial capital by receiving funds expect to pay a rate of return. This rate of return can come in a variety of forms, depending on the type of investment.
What is a balanced fund?
A balanced fund is a type of mutual fund that contains both stocks and bonds. It is sometimes called a blended fund. Typically, stocks make up between 50 percent and 70 percent of a balanced mutual fund, with bonds accounting for the remainder.
What is an open ended mutual fund?
Open ended funds are always open to investment and redemptions, hence, the name open ended funds. Open ended funds are the most common form of investment in mutual funds in India. These funds do not have any lock-in period or maturities; therefore, it is open perennially.
What is open-end and closed-end fund?
A closed-end fund has a fixed number of shares offered by an investment company through an initial public offering. Open-end funds (which most of us think of when we think mutual funds) are offered through a fund company that sells shares directly to investors.
What are the four types of investment funds?
What types of mutual funds are there? Most mutual funds fall into one of four main categories – money market funds, bond funds, stock funds, and target date funds.
What is a interval fund?
An interval fund is a closed-end mutual fund that doesn't trade on an exchange and only allows investors to redeem shares periodically in limited quantities.
What is NAV mutual fund?
NAV or Net Asset Value is the unit price of a mutual fund scheme. Mutual funds are bought or sold on the basis of NAV.
How many types of mutual funds are there?
Currently, there are over 44 registered mutual funds in India, offering different schemes to satisfy the dynamic needs of diverse investors. The different types of mutual funds available can be classified broadly based on structure, asset class, and investment goals.
What are mutual funds?
A mutual fund is a pool of money managed by a professional Fund Manager. It is a trust that collects money from a number of investors who share a common investment objective and invests the same in equities, bonds, money market instruments and/or other securities.
What is the difference between sectoral and thematic fund?
Sector funds focus on specific sectors or industry like banking, pharma, information technology, real estate, energy, etc. Thematic funds, on the other hand, invest in stocks which are well-defined around a particular opportunity. These might look similar to sector funds but may consist of several sectors.
What are 3 types of funds?
There are three major types of funds. These types are governmental, proprietary, and fiduciary.
What is a mutual fund and its types?
A mutual fund is a basket of various investments, such as stocks, bonds, and cash. There are three main types of mutual funds: equity funds, fixed-income funds, and money market funds. Each of these types has a different risk level associated with it. There are two main advantages to mutual funds.
What is fixed fund?
Fixed income funds are mutual funds which give you returns at fixed intervals - monthly, quarterly or half yearly. This income is determined as per a particular rate and may not be a fixed amount. It heavily depends on the performance of the fund as well.
How much can an investor buy in a fund?
B. An investor can purchase as little as one share of a fund.
What is the meaning of "a" in portfolio?
A. (Liabilities - Value of portfolio) + Number of shares outstanding.
Do mutual funds charge commissions?
36. Many mutual funds charge a commission every time they are purchased by investors. These are
How is the price of a stock determined?
The price of its shares is determined by supply and demand, by the value of stocks in the portfolio, and
How much can an investor buy in a fund?
B. An investor can purchase as little as one share of a fund.
Is a sandbox a securities exchange?
A. It is not traded on a securities exchange.
Do mutual funds charge commissions?
Many mutual fund s charge a commission every time they are purchased by investors. These are
Who Demands and Who Supplies in Financial Markets?
In any market, the price is what suppliers receive and what demanders pay. In financial markets, those who supply financial capital through saving expect to receive a rate of return, while those who demand financial capital by receiving funds expect to pay a rate of return. This rate of return can come in a variety of forms, depending on the type of investment.
Which side of the financial market do you borrow money from?
Those who borrow money are on the demand side of the financial market.
How does the law of demand affect credit card lending?
According to the law of demand, a higher rate of return (that is, a higher price) will decrease the quantity demanded. As the interest rate rises, consumers will reduce the quantity that they borrow. According to the law of supply, a higher price increases the quantity supplied. Consequently, as the interest rate paid on credit card borrowing rises, more firms will be eager to issue credit cards and to encourage customers to use them. Conversely, if the interest rate on credit cards falls, the quantity of financial capital supplied in the credit card market will decrease and the quantity demanded will fall.
What is the horizontal axis of the credit card market?
The horizontal axis of the financial market shows the quantity of money that is loaned or borrowed in this market. The vertical or price axis shows the rate of return, which in the case of credit card borrowing can be measured with an interest rate. Table 5 shows the quantity of financial capital that consumers demand at various interest rates and the quantity that credit card firms (often banks) are willing to supply.
What happens when interest rates are above equilibrium?
If the interest rate (remember, this measures the “price” in the financial market) is above the equilibrium level, then an excess supply, or a surplus, of financial capital will arise in this market. For example, at an interest rate of 21%, the quantity of funds supplied increases to $750 billion, while the quantity demanded decreases to $480 billion. At this above-equilibrium interest rate, firms are eager to supply loans to credit card borrowers, but relatively few people or businesses wish to borrow. As a result, some credit card firms will lower the interest rates (or other fees) they charge to attract more business. This strategy will push the interest rate down toward the equilibrium level.
How does investment affect saving?
In deciding between different forms of financial investments, suppliers of financial capital will have to consider the rates of return and the risks involved. Rate of return is a positive attribute of investments, but risk is a negative. If Investment A becomes more risky, or the return diminishes, then savers will shift their funds to Investment B—and the supply curve of financial capital for Investment A will shift back to the left while the supply curve of capital for Investment B shifts to the right.
What is the rate of return?
The simplest example of a rate of return is the interest rate . For example, when you supply money into a savings account at a bank, you receive interest on your deposit. The interest paid to you as a percent of your deposits is the interest rate . Similarly, if you demand a loan to buy a car or a computer, you will need to pay interest on the money you borrow.
What determines the price of a stock?
Put simply, the ask and the bid determine stock price.
Where do stock price fluctuations occur?
Stock price fluctuations happen in the secondary market as stock market participants make decisions to buy or sell. The decision to buy, sell, or hold is based on whether an investor or investment professional believes that the stock is undervalued, overvalued, or correctly valued.
How to keep up with stock market?
There are plenty of ways to keep up with stock prices online. You can check stock prices directly on the exchanges throughout the day, or on a variety of stock-tracking websites. There are also many apps and tools for day traders that can provide real-time stock charting down to the minute.
How to predict stock price?
There is no way to perfectly predict stock price movement, and different investors rely on different methods. Some rely on a stock's current momentum and direction, others analyze company details like price-to-earnings ratio, earnings per share, and more complicated metrics. Various methods can help you make informed decisions, but there is always some degree of risk and uncertainty involved.
Why do stock prices fluctuate?
The Efficient Market Hypothesis says that a stock price reflects a company's true value at any given time. The Intrinsic Value Theory states that companies may trade for more or less than they are worth.
How does a market maker in the middle work?
A market maker in the middle works to create liquidity by facilitating trades between the two parties. Put simply, the ask and the bid determine stock price. When a buyer and seller come together, a trade is executed, and the price at which the trade occurred becomes the quoted market value.
What is intrinsic value theory?
This theory states that companies trade for more or less than what they are worth all the time.
How is the price of a stock determined?
The price of its shares is determined by supply and demand, by the value of stocks in the portfolio, and by investor expectations.
How much does a managed fund outperform an index fund?
A managed fund will outperform an index fund only 60% of the time .
What happens if you hold mutual fund shares in Roth?
If you hold mutual fund shares in your Roth individual retirement account, the taxes on reinvested income will be
Is back end load, B fund and redemption fee correct?
Back-end load, B fund and redemption fee are all correct.
Is all of the ways listed valid purchase options?
All of the ways listed are valid purchase options.
How do supply and demand affect bond prices?
Supply and demand have a substantial influence on the prices of all assets, including bonds. Bonds are issued with a set face value and trade at par when the current price is equal to the face value. Bonds trade at a premium when the current price is higher than the face value. For example, a $1,000 face value bond selling at $1,200 is trading at a premium. Discount bonds are the opposite, selling for lower than the listed face value.
What are the influences on bond pricing?
The three primary influences on bond pricing on the open market are supply and demand, term to maturity, and credit quality.
Why do bonds have higher interest rates?
Since a bondholder is closer to receiving the face value as the maturity date approaches, the bond's price moves toward par as it ages. When the yield curve is normal, bonds with longer terms to maturity have higher interest rates and lower prices. The main reason is that a longer term to maturity increases interest rate risk.
What happens to bond prices after bond is issued?
After the bond is issued, a decrease in creditworthiness will also cause a decline in the bond price on the secondary market. Lower bond prices mean higher bond yields, which offset the increased default risk implied by lower credit quality. As a practical matter, investors rely on bond ratings to measure credit quality.
Why are bonds with poor ratings lower?
Since bonds with poor ratings have a lower chance of repayment by the issuer, the prices of these bonds are also lower.
How do bond prices fluctuate?
Bond prices fluctuate on the open market in response to supply and demand for the bond. Furthermore, the price of a bond is determined by discounting the expected cash flow to the present using a discount rate. The three primary influences on bond pricing on the open market are supply and demand, term to maturity, and credit quality.
What is the yield of a $1,000 bond?
Bonds that are priced lower have higher yields. They are more attractive to investors, all other things being equal. For instance, a $1,000 face value bond with a 6% interest rate pays $60 in annual interest every year regardless of the current trading price. Interest payments are fixed. When the bond is currently trading at $800, that $60 interest payment creates a present yield of 7.5%.
How are stock prices determined?
Stock prices are determined in the marketplace, where seller supply meets buyer demand. But have you ever wondered about what drives the stock market—that is, what factors affect a stock's price? Unfortunately, there is no clean equation that tells us exactly how the price of a stock will behave. That said, we do know a few things about the forces that move a stock up or down. These forces fall into three categories: fundamental factors, technical factors, and market sentiment .
What drives stock prices?
Stock prices are driven by a variety of factors, but ultimately the price at any given moment is due to the supply and demand at that point in time in the market. Fundamental factors drive stock prices based on a company's earnings and profitability from producing and selling goods and services. Technical factors relate to a stock's price history ...
What is earnings base?
An earnings base, such as earnings per share (EPS) A valuation multiple, such as a P/E ratio. An owner of common stock has a claim on earnings, and earnings per share (EPS) is the owner's return on their investment. When you buy a stock, you are purchasing a proportional share of an entire future stream of earnings.
Why is low inflation bad for stocks?
2 Deflation, on the other hand, is generally bad for stocks because it signifies a loss in pricing power for companies.
How does news affect stock market?
The political situation, negotiations between countries or companies, product breakthroughs , mergers and acquisitions , and other unforeseen events can impact stocks and the stock market. Since securities trading happens across the world and markets and economies are interconnected, news in one country can impact investors in another, almost instantly.
What is valuation multiple?
The valuation multiple expresses expectations about the future. As we already explained, it is fundamentally based on the discounted present value of the future earnings stream. Therefore, the two key factors here are:
Why do you buy stock with a valuation multiple?
That's the reason for the valuation multiple: It is the price you are willing to pay for the future stream of earnings. 1:26.
Why is supply and demand important?
The reason more of a good was produced in the first place is because it became more economically efficient (or no less economically efficient) to do so. If someone were to invent a well stimulation technique that could double an oil field 's output for only a small incremental cost, then with demand staying static, prices should fall .
What are the factors that affect the price of oil?
The two primary factors that impact the price of oil are: Supply and demand. Market sentiment. The concept of supply and demand is fairly straightforward. As demand increases (or supply decreases) the price should go up. As demand decreases (or supply increases) the price should go down.
What is oil market?
Oil markets are composed of speculators who are betting on price moves, and hedgers who are limiting risk in the production or consumption of oil.
How are oil prices determined?
Unlike most products, oil prices are not determined entirely by supply, demand, and market sentiment toward the physical product. Rather, supply, demand, and sentiment toward oil futures contracts, which are traded heavily by speculators, play a dominant role in price determination.
What is the driver of oil prices?
Like most commodities, the fundamental driver of oil's price is supply and demand in the market. Oil markets are composed of speculators who are betting on price moves, and hedgers who are limiting risk in the production or consumption of oil.
Which countries have the biggest influence on oil prices?
Probably the single biggest influencer of oil prices is OPEC, made up of 13 countries (Algeria, Angola, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, United Arab Emirates, and Venezuela); collectively, OPEC controls 40% of the world's supply of oil. 15
Is oil a futures contract?
Not quite. The price of oil as we know it is actually set in the oil futures market. 5 An oil futures contract is a binding agreement that gives one the right to purchase oil by the barrel at a predefined price on a predefined date in the future. Under a futures contract, both the buyer and the seller are obligated to fulfill their side of the transaction on the specified date.
