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Consider the following statements:
- Assets Under Management is the total market value of investments a financial institution owns or manages on behalf of its clients.
- Book value is the value of a company based on the current stock price and the number of outstanding shares.
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'A'. Can you explain this answer?
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Most Upvoted Answer
Consider the following statements: Assets Under Management is the tota...
Explanation:
Statement 1: Assets Under Management is the total market value of investments a financial institution owns or manages on behalf of its clients.
This statement is correct. Assets Under Management (AUM) refers to the total market value of investments that a financial institution, such as a bank, asset management company, or investment firm, owns or manages on behalf of its clients. AUM includes various types of assets such as stocks, bonds, mutual funds, real estate, and other investment vehicles. It is an important measure of the size and growth of a financial institution and is often used to gauge its performance and profitability.
Statement 2: Book value is the value of a company based on the current stock price and the number of outstanding shares.
This statement is incorrect. Book value refers to the value of a company's assets minus its liabilities, as reflected on its balance sheet. It is calculated by subtracting the total liabilities from the total assets. Book value is a measure of a company's net worth and represents the value of its equity. It is different from the market value of a company, which is based on the current stock price and the number of outstanding shares. The market value can be higher or lower than the book value, depending on various factors such as market conditions, investor sentiment, and future growth prospects.
Conclusion:
In conclusion, only Statement 1 is correct, while Statement 2 is incorrect.
Statement 1: Assets Under Management is the total market value of investments a financial institution owns or manages on behalf of its clients.
This statement is correct. Assets Under Management (AUM) refers to the total market value of investments that a financial institution, such as a bank, asset management company, or investment firm, owns or manages on behalf of its clients. AUM includes various types of assets such as stocks, bonds, mutual funds, real estate, and other investment vehicles. It is an important measure of the size and growth of a financial institution and is often used to gauge its performance and profitability.
Statement 2: Book value is the value of a company based on the current stock price and the number of outstanding shares.
This statement is incorrect. Book value refers to the value of a company's assets minus its liabilities, as reflected on its balance sheet. It is calculated by subtracting the total liabilities from the total assets. Book value is a measure of a company's net worth and represents the value of its equity. It is different from the market value of a company, which is based on the current stock price and the number of outstanding shares. The market value can be higher or lower than the book value, depending on various factors such as market conditions, investor sentiment, and future growth prospects.
Conclusion:
In conclusion, only Statement 1 is correct, while Statement 2 is incorrect.
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Community Answer
Consider the following statements: Assets Under Management is the tota...
Kotak Mahindra Group recently merged the investment advisory business and alternate fund management business that will have a $18-billion cumulative assets under management.
About Assets Under Management:
- What is it? AUM is the total market value of investments a financial institution owns or manages on behalf of its clients.
- These assets can include various types of financial products, such as mutual funds, hedge funds, exchange-traded funds (ETFs), pension funds, and other investment vehicles.
- AUM can be calculated in different ways, depending on the firm’s discretion.
- The calculation is done on the basis of either the total capital that the firm handles or calculating the Individual client’s money.
- AUM fluctuates daily reflecting the variable returns from stocks, mutual funds and change in prices of fixed investment.
- Importance of AUM:
- AUM helps to build the market value of the firm.
- It can be used as a market tool to attract potential new customers. The higher a firm's AUM is, the more likely people are to trust them and invest with them.
- A fund's management fees and expenses are often calculated as a percentage of AUM.
What is Book value and Market value of a company?
- A company's book value is the amount of money shareholders would receive if assets were liquidated and liabilities paid off. The book value of an asset is strictly based on the company’s balance sheet.
- The market value is the value of a company according to the markets based on the current stock price and the number of outstanding shares.
- When the market value is less than book value, the market doesn't believe the company is worth the value on its books.
- A higher market value than book value means the market is assigning a high value to the company due to expected earnings increases.
Hence only statement 1 is correct.
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