Download - 7.7 Mutual Funds
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Lesson 7.7 Slide 1BUSINESS MATH © Thomson/South-Western
7.7 Mutual Funds
Calculate the total investment in a mutual fund
Calculate the amount and rate of commission
Calculate profit or loss from mutual fund investments
Lesson 7.7 Slide 2BUSINESS MATH © Thomson/South-Western
Mutual Funds
Mutual fund investment companies use the money from investors to buy stock in many companies.
By investing in many companies, the mutual fund increases its chances of buying stocks that will be profitable.
Lesson 7.7 Slide 3BUSINESS MATH © Thomson/South-Western
Different Kinds of Mutual Fund Companies
There are many different kinds of mutual fund companies.
Some have aggressive growth goals. Others choose to maximize the income from shares
held. Some mutual funds specialize in certain sectors of
the economy, such as the health sector. Others buy stock from many different types of
organizations and from many different sectors of the economy.
Lesson 7.7 Slide 4BUSINESS MATH © Thomson/South-Western
Net Asset Values
Mutual fund shares are traded based on their net asset values.
The net assets are the total value of the fund’s investments less any debts it has.
The net asset value, or NAV, is found by dividing the net assets by the number of shares held by stockholders.
For example, a fund with net assets of $10,000,000 and 500,000 shares issued will have a net asset value of $20 ($10,000,000 ÷ 500,000 = $20).
Lesson 7.7 Slide 5BUSINESS MATH © Thomson/South-Western
Sample Information from Newspaper Financial Pages
Lesson 7.7 Slide 6BUSINESS MATH © Thomson/South-Western
No-load Funds and Load Funds
Two types of mutual funds are shown in the table: no-load funds and load funds.
The term load means commission. No-load funds are sold without a commission
and have the abbreviation “N.L.” in the Offer Price column.
When you buy load funds, you pay the amount shown in the Offer Price column, which includes a commission charge.
Lesson 7.7 Slide 7BUSINESS MATH © Thomson/South-Western
Total Investment
To find the total investment made in no-load funds, multiply the number of shares by the NAV.
For load funds, multiply the number of shares by the offer price.
Total Investment in No-Load Funds = No. Shares × NAV
Total Investment in Load Funds = No. Shares × Offer Price
Lesson 7.7 Slide 8BUSINESS MATH © Thomson/South-Western
Amount and Rate of Commissions
When you buy no-load funds, you are not charged a commission.
For load funds, the commission is the difference between the net asset value and the offer price.
Lesson 7.7 Slide 9BUSINESS MATH © Thomson/South-Western
Find the Rate of Commission
To find the rate of commission on a load fund’s purchase, divide the commission by the offer price.
Offer Price – Net Asset Value = Commission
Commission ÷ Offer Price = Rate of Commission
Lesson 7.7 Slide 10BUSINESS MATH © Thomson/South-Western
Redeeming Mutual Fund Shares
When shares are redeemed, or sold back to the mutual fund company, the investor is paid the net asset value.
The proceeds from the sale are found by multiplying the net asset value by the number of shares redeemed.
Proceeds – Number of Shares = Net Asset Value
Lesson 7.7 Slide 11BUSINESS MATH © Thomson/South-Western
Profit or Loss from Mutual Fund Investments
The profit or loss from owning mutual fund shares is the difference between the proceeds and the total amount invested. If proceeds exceed investment, there is a profit. If the amount invested is larger than the proceeds,
there is a loss.
Proceeds – Amount of Investment = Profit
Amount of Investment – Proceeds = Loss
Lesson 7.7 Slide 12BUSINESS MATH © Thomson/South-Western
$11,170
Lesson 7.7 Slide 13BUSINESS MATH © Thomson/South-Western
$11,170$2,308
Lesson 7.7 Slide 14BUSINESS MATH © Thomson/South-Western
193.948
Lesson 7.7 Slide 15BUSINESS MATH © Thomson/South-Western
193.948
30.525
Lesson 7.7 Slide 16BUSINESS MATH © Thomson/South-Western
0%
Lesson 7.7 Slide 17BUSINESS MATH © Thomson/South-Western
Lesson 7.7 Slide 18BUSINESS MATH © Thomson/South-Western