GOALS BUSINESS MATH© Thomson/South-WesternLesson 7.7Slide 1 7.7Mutual Funds Calculate the total investment in a mutual fund Calculate the amount and rate of commission Calculate profit or loss from mutual fund investments
BUSINESS MATH© Thomson/South-WesternLesson 7.7Slide 2 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.
BUSINESS MATH© Thomson/South-WesternLesson 7.7Slide 3 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.
BUSINESS MATH© Thomson/South-WesternLesson 7.7Slide 4 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).
BUSINESS MATH© Thomson/South-WesternLesson 7.7Slide 5 Sample Information from Newspaper Financial Pages
BUSINESS MATH© Thomson/South-WesternLesson 7.7Slide 6 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.
BUSINESS MATH© Thomson/South-WesternLesson 7.7Slide 7 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
BUSINESS MATH© Thomson/South-WesternLesson 7.7Slide 8 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.
BUSINESS MATH© Thomson/South-WesternLesson 7.7Slide 9 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
BUSINESS MATH© Thomson/South-WesternLesson 7.7Slide 10 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
BUSINESS MATH© Thomson/South-WesternLesson 7.7Slide 11 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
BUSINESS MATH© Thomson/South-WesternLesson 7.7Slide 12 $11,170
BUSINESS MATH© Thomson/South-WesternLesson 7.7Slide 13 $11,170 $2,308
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