Money Market Mutual Funds Concepts

The video explains the concept of a money market mutual fund, starting with an initial capitalization of $9 million and dividing it into 9 million shares. It discusses the investment strategy involving T-bills, commercial paper, and CDs, emphasizing their safety and liquidity. The video also covers potential risks, such as breaking the buck, where the net asset value per share falls below $1, and the impact on investor confidence. It highlights the rarity of such events and the measures taken by parent companies to maintain reputation and stability.

What is the initial asset value of the money market mutual fund described?

• $8 million

• $10 million

• $7 million

• $9 million

How many shares are created when the money market mutual fund is capitalized?

• 7 million

• 8 million

• 10 million

• 9 million

What types of assets are money market mutual funds typically invested in?

• Real estate

• T-bills, commercial paper, and CDs

• Stocks

• Cryptocurrency

How are dividends typically handled in money market mutual funds?

• Paid to shareholders

• Held as cash

• Reinvested automatically

• Used to buy more shares

What is the typical net asset value per share for a money market mutual fund?

• $1

• $2

• $0.50

• $1.50

What is the primary reason money market funds are considered safe investments?

• They invest in high-risk assets

• They are backed by the government

• They have high returns

• They invest in liquid and short-term assets

What is a rare event that can cause the net asset value of a money market fund to decrease?

• A decrease in inflation

• An increase in interest rates

• A government default on debt

• A rise in stock prices

What term is used when the net asset value per share falls below $1?

• Breaking the bank

• Breaking the buck

• Breaking the bond

• Breaking the fund

How do mutual fund companies typically respond to 'breaking the buck'?

• Sell off assets

• Close the fund

• Make the fund whole

• Ignore the situation

Why do mutual fund companies prefer to make a fund whole rather than let it remain below $1 per share?

• To reduce taxes

• To increase profits

• To avoid legal issues

• To maintain customer trust