________ invest a pool of funds belonging to many individuals in a portfolio of individual investments such as stocks and bonds.
Click on the arrows to vote for the correct answer
A. B. C. D.D
Investment companies create a portfolio of individual market instruments such as stocks and bonds and market the shares of this portfolio to the individual investor.
The correct answer to the question is D. Investment companies.
Investment companies are entities that pool funds from individual investors and use those funds to create a diversified portfolio of investments, such as stocks and bonds. These investments are typically managed by professional investment managers who make decisions on behalf of the investors. The main purpose of investment companies is to provide individual investors with access to a diversified portfolio that would be difficult to achieve on their own.
Investment companies can take different legal forms, such as mutual funds, exchange-traded funds (ETFs), and closed-end funds. Let's briefly explain each of them:
Mutual funds: A mutual fund is an investment company that pools money from multiple investors to invest in a diversified portfolio of securities. Each investor owns shares in the mutual fund, which represent a proportional interest in the underlying portfolio. Mutual funds are open-ended, which means that they continuously issue new shares and redeem existing shares at their net asset value (NAV) based on the underlying portfolio's value.
Exchange-Traded Funds (ETFs): ETFs are similar to mutual funds in that they pool funds from investors to invest in a portfolio of securities. However, unlike mutual funds, ETFs are traded on stock exchanges like individual stocks. ETF shares can be bought and sold throughout the trading day at market prices, which may be at a premium or discount to the ETF's net asset value.
Closed-end funds: Closed-end funds are investment companies that issue a fixed number of shares through an initial public offering (IPO). Unlike mutual funds and ETFs, closed-end funds do not continuously issue or redeem shares. The shares of closed-end funds are traded on stock exchanges, and their prices are determined by supply and demand factors, which can lead to the shares trading at a premium or discount to the fund's net asset value.
In summary, investment companies are responsible for pooling funds from individual investors and investing them in a diversified portfolio of securities such as stocks and bonds. They provide individuals with access to professional investment management and the benefits of diversification. The different legal forms of investment companies include mutual funds, ETFs, and closed-end funds.