Assets pricing Essay Example | Topics and Well Written Essays - 1000 words

Assets pricing - Essay Example In the US, the performance of mutual funds that are outside the US is not affected very negatively by diminishing returns to scale. In UK, the analysis of mutual funds shows a strong indication of underperformance. It is true that most investors pick funds that are ranked at the top in league tables. The reason is that such funds are likely to yield positive returns for the investors. They rarely withdraw money from underperforming funds in order to reap benefits when they reach a high performing state. One can test his/her persistence in fund performance by analyzing the previous records of accomplishment of the funds. Bonds are not risk free because their value is associated with currency that value of which can go down because of inflation. Moreover, liquidity and reinvestment risks are associated with bonds. Although they can generate a high amount of money, but they investment in them cannot be fully guaranteed as risk-free. Interest rate risk, rating downgrades risk, and credit/default risk are some of such risks that have the potential to alter the decision of investing in bonds. These risks confirm the statement that bonds are not risk free. The difference between these two bonds is that a convertible bonds allows the bond holder to convert debt into the issuing corporation’s common shares, whereas callable bonds gives charge to the issuing corporation to buy back the bond at election (Barron 2012). A form wants to issue these types of bonds to raise money and to stabilize economy in case of fall in interest rate. Yield to maturity means that the bond will yield profit or loss only after repaying of the par value, whereas in holding period return, the return of investors from holding has less association with the coupon rate. The safety-first concept is based on the principle that development of a portfolio should be based on the minimum acceptable return. This rule helps companies in achieving their