1. 7e Contemporary Mathematics FOR BUSINESS AND CONSUMERS Brechner PowerPoint Presentation by Domenic Tavella, MBA Investments ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1

2. 7e PERFORMANCE OBJECTIVES Section I Stocks 20-1:Understanding stocks and distributing dividends on preferred and common stock 20-2:Reading a stock quotation table 20-3:Calculating current yield of a stock 20-4:Determining the price-earnings ratio of a stock 20-5:Computing the cost, proceeds, and gain (or loss) on a stock transaction Section II Bonds 20-6:Understanding bonds and reading a bond quotation table 2 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

3. 7e PERFORMANCE OBJECTIVES Section II Bonds 20-7:Calculating the cost of purchasing bonds and the proceeds from the sale of bonds 20-8:Calculating the current yield of a bond Section III Mutual Funds 20-9:Understanding mutual funds and reading a mutual fund quotation table 20-10: Calculating the sales charge and sales charge percent of a mutual fund 20-11: Calculating the net asset value of a mutual fund 20-12: Calculating the number of shares purchased of a mutual fund 20-13: Calculating return on investment 3 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. continued

4. 7e Stocks 4 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. financial risk The chance you take of either making or losing money on an investment. conservative investments Low-risk investments, such as government bonds or certificates of deposit. speculative investments High-risk investments, such as stocks in new companies, junk bonds, or options and futures. diversified portfolio An investment strategy that is a mixture of stocks, bonds, cash equivalents, and other types of investments.

5. 7e Stocks 5 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. continued stocks, or equities An investment that is an ownership share of a corporation.share One unit of stock or ownership in a corporation. stock certificate The official document that represents an ownership share in a corporation.shareholder The person who owns shares of stock in a corporation.dividends A distribution of a company’s profits to its shareholders.

6. 7e Stocks 6 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. continued publicly held corporation A corporation whose stock is available to be bought and sold by the general investing public. The opposite of a privately held corporation. common stock A class of corporate stock in which the investor has voting rights and shares directly in the success or failure of the business. preferred stock A class of corporate stock in which the investor has preferential rights over the common shareholders to dividends and a company’s assets.

7. 7e Stocks 7 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. continued par value An arbitrary monetary figure specified in the corporate charter for each share of stock and printed on each stock certificate. The dividend for par value preferred stock is quoted as a percent of the par value. no-par value stock Stock that does not have a par value. The dividend for no-par value preferred stock is quoted as a dollar amount per share.

8. 7e Preferred Stock 8 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. cumulative preferred stock A type of preferred stock that receives a dividend each year. When no dividends are paid one year, the amount owed accumulates and must be paid to cumulative preferred shareholders before any dividends can be paid to common shareholders. dividends in arrears The amount of dividends that accumulate and are owed to cumulative preferred shareholders for past years in which no dividends were paid.

9. 7e 9 EXHIBIT 20-1 Risk vs. Return ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

10. 7e 10 EXHIBIT 20-2 Stock Certificate ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

11. 7e STEPS 11 STEP 1 If the preferred stock is cumulative, any dividends that are in arrears are paid first; then the preferred dividend is paid for the current period. When the dividend per share is stated in dollars (no-par stock), go to Step 2. When the dividend per share is states as a percent (par stock), multiply the par value by the dividend rate. Dividend per share (preferred) = Par value × Dividend rate STEP 2 Calculate the total amount of the preferred stock dividend by multiplying the number of preferred shares by the dividend per share. Total preferred dividend = Number of shares × Dividend per share STEP 3 Calculate the total common stock dividend by subtracting the total preferred stock dividend from the total dividend declared. Total common dividend = Total dividend – Total preferred dividend STEP 4 Calculate the dividends per share for common stock by dividing the total common stock dividend by the number of shares of common stock. Dividend per share (common) = TO DISTRIBUTE DIVIDENDS ON PREFERRED AND COMMON STOCK ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Total common dividend Number of shares (common)

12. 7e Dividends on Preferred and Common Stock Example 12 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. A firm has 300,000 shares of $100 par value, 7.5% cumulative preferred stock and 5,200,000 shares of common stock outstanding. Although no dividend was declared for last year, a $7,000,000 dividend has been declared for this year. Calculate the amount of dividends due the preferred shareholders and the dividend per share of common stock. Dividend per share = Par value x Dividend rate Dividend per share = 100 × 7.5% = $7.50 Total preferred dividend per year = Preferred shares × Dividend per share Total preferred dividend per year = 300,000 × 7.50 = $2,250,000

13. 7e Dividends on Preferred and Common Stock Example 13 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. continued Total preferred dividend due= Arrears + Current 2,250,000 + 2,250,000 = $4,500,000 Total common dividend = Total dividend – Preferred dividend Total common dividend = 7,000,000 – 4,500,000 = $2,500,000

14. 7e 14 EXHIBIT 20-3 Stock Quotation Table – The Wall Street Journal Online ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

15. 7e Reading Stock Quotations 15 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Column 1 (Name McDonald’s Corporation) Company name. Column 2 (Symbol MCD) Symbol used to easily identify a particular stock. The symbol for McDonald’s stock is MCD. Column 3 (Open 73.47) Opening price of the stock that trading day. On that day, McDonald’s stock opened at $73.47. Column 4 (High 74.07) Highest price of the stock during the trading day. During that day, the McDonald’s stock price reached a high of $74.07.

16. 7e Reading Stock Quotations 16 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. continued Column 5 (Low 72.86) Lowest price of the stock during the trading day. During that day, the McDonald’s stock price reached a low of $72.86. Column 6 (Close 73.99) The last price of the trading day. That day, the McDonald’s stock price closed at $73.99. Column 7 (Net Change 0.83) The difference, or net change, between the “close” price and the previous day’s “close” price. Positive change is indicated in green. Negative change is indicated by a minus sign, and in red. That day, the McDonald’s stock price closed up $0.83 per share.

17. 7e Reading Stock Quotations 17 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. continued Column 8 (%Change 1.13) The trading day’s percentage change in price. Positive change is indicated in green. Negative change is indicated by a minus sign, and in red. That day, the McDonald’s stock price went up 1.13%. Column 9 (Volume 6,568,927) The volume or number of shares traded during the day. On that day, more than 6.5 million shares of McDonald’s were traded. Column 10 (52 Week High 74.07) Highest price of the stock during the preceding 52-week period. In the past year, the McDonald’s stock price reached a high of $74.07.

18. 7e Reading Stock Quotations 18 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. continued Column 11 (52 Week Low 53.88) Lowest price of the stock during the preceding 52-week period. In the past year, the McDonald’s stock price reached a low of $53.88. Column 12 (Dividend 2.20) The amount of dividends paid out to shareholders in the past year. When there are no dividends, the column shows “...”. (See Cisco Systems, Inc.) Last year McDonald’s paid stockholders a dividend of $2.20 per share. Column 13 (Yield 2.97) Yield percent. Last year’s dividend as a percent of the current price of the stock. When there are no dividends, the column shows “...”. (See Cisco Systems, Inc.) Last year, McDonald’s dividend yielded stockholders a 2.97% return on their investment.

19. 7e Reading Stock Quotations 19 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. continued Column 14 (P/E 17) Price-earnings ratio. A number that indicates investors’ confidence in a stock. It is the ratio of the current price of the stock to the earnings per share for the past year. The price of McDonald’s stock was selling at a P/E ratio or multiple of 17 times the earnings per share.

20. 7e Current Yield for a Stock 20 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. current yield A percentage measure of how much an investor is earning on a stock compared with other investments. It is calculated by dividing the annual dividend per share by the current price of the stock.

21. 7e STEPS 21 STEP 1 Divide the annual dividend per share by the current price of the stock. Current yield = STEP 2 Convert the answer to a percent, rounding to the nearest tenth. TO CALCULATE THE CURRENT YIELD OF A STOCK ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Annual dividend per share Current price of the stock

22. 7e Current Yield for a Stock Example 22 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. A corporation paid a dividend of $.68 per share last year. If yesterday’s last price was $12.84, what is the current yield on the stock?

23. 7e The Price-Earnings Ratio of a Stock 23 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. price-earnings ratio, or PE ratio A ratio that shows the relationship between the price of a stock and a company’s earnings for the past 12 months; one of the most widely used tools for analyzing stock.

24. 7e STEPS 24 STEP 1 Divide the current price of the stock by the earnings per share for the past 12 months. Price-earnings ratio = STEP 2 Round answer to the nearest whole number (may be written as a ratio, X:1). TO DETERMINE THE PRICE-EARNINGS RATIO OF A STOCK ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Current price per share Earnings per share

25. 7e Price-Earnings Ratio Example 25 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. A firm’s stock is currently selling for $37.19 per share. If the firm had earnings per share of $6.70 in the past 12 months, what is the stock’s price-earnings ratio?

26. 7e Stock Transactions 26 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. stock exchanges Marketplaces where stocks, bonds, and mutual funds are bought and sold in the form of an auction. stockbroker’s commission The fee a stockbroker charges for assisting in the purchase or sale of shares of stock; a percent of the cost of the stock transaction.proceeds The amount of money that an investor receives after selling a stock. It is calculated as the value of the shares less the broker’s commission.

27. 7e Stock Transactions 27 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. continued stockbroker A professional in stock market trading and investments who acts as an agent in the buying and selling of stocks or other securities. full-service broker Stockbrokers who provide services such as research and investment advice in addition to assisting in the purchase or sale of stock. Commissions generally range from 3% to 5% of the cost of the transaction. discount broker Minimum service stockbrokers who simply execute stock purchase and sale transactions. Commissions generally range from 1% to 2% of the cost of the transaction.

28. 7e Stock Transactions 28 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. continued round lot Shares of stock purchased in multiples of 100. odd lot The purchase of less than 100 shares of stock.

29. 7e STEPS 29 Cost of purchasing stock STEP 1 Calculate the cost of the shares. Cost of shares = Price per share × Number of shares STEP 2 Compute the amount of the broker’s commission. Broker’s commission = Cost of shares × Commission rate STEP 3 Determine the total cost of the stock purchase. Total cost = Cost of shares + Broker’s commission TO COMPUTE THE COST, PROCEEDS, AND GAIN (OR LOSS) ON A STOCK TRANSACTION ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

30. 7e STEPS 30 Proceeds from selling stock STEP 1 Calculate the value of shares on sale. Value of shares = Price per share × Number of shares STEP 2 Compute the amount of the broker’s commission. Broker’s commission = Cost of shares × Commission rate STEP 3 Determine the proceeds by subtracting the commission from the value of the shares. Proceeds = Value of shares – Broker’s commission Gain (or loss) on the transaction Gain (or loss) on transaction = Proceeds – Total cost TO COMPUTE THE COST, PROCEEDS, AND GAIN (OR LOSS) ON A STOCK TRANSACTION ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. continued

31. 7e Stock Transactions Example 31 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. You purchased 650 shares of common stock at $44.25 per share. Later, you sold them at $57.29. The stockbroker charges 3% commission on round lots and an extra 1½% on odd lots. Calculate the total cost, the proceeds and the gain (or loss) on the transaction. Cost of stock: Cost of shares = Price per share × Number of shares Cost of shares = 44.25 × 650 = $28,762.50 Broker’s commission = Cost of shares × Commission rate Round lot = 600 × 44.25 ×.03 = $796.50 Odd lot = 50 × 44.25 ×.045 = $99.56 Total commission = 796.50 + 99.56 = $896.06 Total purchase cost = Cost of stock + Commissions Total purchase cost = 28,762.50 + 896.06 = $29,658.56

32. 7e Stock Transactions Example 32 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. continued Calculate the gain (or loss) on the transaction: Proceeds from sale: Value of shares = Price per share × Number of shares Value of shares = 57.29 × 650 = $37,238.50 Commission: Round lot = 600 × 57.29 ×.03 = $1,031.22 Odd lot = 50 × 57.29 ×.045 = $128.90 Total commission = 1,031.22 + 128.90 = $1,160.12 Proceeds = 37,238.50 – 1,160.12 = $36,078.38 Gain on transaction: Gain = Proceeds – Total purchase cost Gain = 36,078.38 – 29,658.56 = $6,419.82

33. 7e Bonds 33 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. bond A loan or an IOU in the form of a long-term interest- bearing note, in which the bond buyer lends money to the bond issuer. secured bonds Bonds that are backed by a lien on specific collateral such as a plant, equipment, or other corporate asset. unsecured bonds, or debentures Bonds backed only by the general credit of the issuing corporation, not on specific collateral pledged as security.

34. 7e Bonds 34 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. continued convertible bonds Bonds that can be converted or exchanged at the owner’s option for a certain number of shares of common stock. callable bonds Bonds that the issuer has the right to call or repurchase before the maturity date. Bonds are called when interest rates are falling and the issuer issues new bonds at a lower rate.

35. 7e Bonds 35 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. continued coupon rate A fixed percentage of the par value of a bond that is paid to the bondholder on a regular basis.premium When a bond is selling for more than its par value, it is said to be selling at a premium. This occurs during periods when prevailing interest rates are declining.discount When a bond is selling for less than its par value, it is said to be selling at a discount. This occurs during periods when prevailing interest rates are rising.

36. 7e 36 EXHIBIT 20-4 Bond Certificate ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

37. 7e 37 EXHIBIT 20-5 Corporate Bond Quotation Table—The Wall Street Journal Online ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

38. 7e Reading Bond Quotations 38 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Column 1 (Issue Name Kraft Foods) Company name. Column 2 (Symbol KFT.GD) Symbol used to easily identify a particular bond. The symbol for the Kraft Foods’ bond is KFT.GD. Column 3 (Coupon 5.625%) The coupon rate of the bond. A fixed percent of the par value of the bond. The Kraft Foods bond is paying interest of 5.625% of par value. Column 4 (Maturity Nov 2014) The maturity date of the bond. The date the company has to buy back the bonds. This particular Kraft Foods bond has a maturity date of November 2014.

39. 7e Reading Bond Quotations 39 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. continued Column 5 (Rating Baa2/BBB-/BBB-) The rating of the bond from three different rating services: Moody’s, S&P, and Fitch. The Kraft Foods bond is rated Baa2 by Moody’s; BBB- by S&P; and BBB- by Fitch. For further rating information, consult the web sites of the individual rating services. Column 6 (High 105.458) The highest price of the trading day. That day, the Kraft Foods bond price reached a high of $1,054.58. Column 7 (Low 105.044) The lowest price of the trading day. That day, the Kraft Foods bond price reached a low of $1,050.44.

40. 7e Reading Bond Quotations 40 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. continued Column 8 (Last 105.370) The closing price of the trading day. That day, the Kraft Foods bond had a closing price of $1,053.70. Column 9 (Change 0.349) The difference, or net change, between the closing price and the previous day’s closing price. Positive change is indicated in green. Negative change is indicated by a minus sign, and in red. That day, the Kraft Foods bond price closed up $3.49. Column 10 (Yield% 5.338) The yield percent of the bond calculated by dividing the coupon rate by the current price of the bond. That day, the yield on the Kraft Foods bond was 5.338%.

41. 7e Purchasing Bonds 41 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. accrued interest When bonds are traded between the stated interest payment dates, interest accumulated from the last payment date must be paid to the seller by the buyer.

42. 7e STEPS 42 STEP 1 Calculate the accrued interest on the bond since the last payment date using I = PRT. STEP 2 Calculate the price to purchase the bond. Price per bond = Current market price + Accrued interest + Commission STEP 3 Calculate total purchase price. Total purchase price = Price per bond × Number of bonds purchased TO CALCULATE THE COST OF PURCHASING A BOND ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

43. 7e Purchasing Bonds Example 43 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. What is the purchase price of 20 Silver Lake Corporation bonds with a coupon rate of 6 ¼% and a current market price of 91.375? The commission charge is $10 per bond. The date of the transaction is October 1, and the bond pays interest on February 1 and August 1. Price per bond = Market price + Accrued interest + Commission Price per bond = 913.75 + 10.42 + 10 = $934.17 Total purchase price = Price per bond x # of bonds purchased Total purchase price = 934.17 × 20 = $18,683.40

44. 7e STEPS 44 STEP 1 Calculate the accrued interest on the bond since the last payment date by using I = PRT. STEP 2 Calculate the proceeds per bond. Proceeds = Current market price + Accrued interest – Commission STEP 3 Calculate the total proceeds from the sale. Total proceeds = Proceeds per bond × Number of bonds sold TO CALCULATE THE PROCEEDS FROM THE SALE OF A BOND ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

45. 7e Proceeds from the Sale of a Bond Example 45 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. What are the proceeds of the sale of five bonds with a coupon rate of 8.875 and market price of $99.00? The commission charge is $10 per bond. The date of the transaction is 122 days since the last interest payment. Proceeds = Current market price + Accrued interest – Commission Proceeds = 990 + 30.08 – 10.00 = $1,010.08 Total proceeds = Proceeds per bond × number of bonds sold Total proceeds = 1,010.08 × 5 = $5,050.40

46. 7e STEPS 46 STEP 1 Calculate the annual interest and current price of the bond. STEP 2 Divide the annual interest of the bond by the current market price. Current yield = STEP 3 Convert the answer to a percent, rounding to the nearest tenth. TO CALCULATE CURRENT YIELD OF A BOND ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Annual interest Current market price

47. 7e Current Yield of a Bond Example 47 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Calculate the current yield for a bond with a coupon rate of 9.375% and currently selling at a discount of 84.75. Annual interest = Par value x Coupon rate Annual interest = 1,000 x.09375 = $93.75 Current price = Par value x Price percent Current price = 1,000 x.8475 = $847.50

48. 7e Mutual Funds 48 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. mutual funds, or investment trusts Corporations that are investment pools of money with a wide variety of investment goals. net asset value (NAV) The dollar value of one share of a mutual fund’s stock. It is the price investors receive when they sell their shares of the fund. offer price The price per share investors pay when purchasing a mutual fund. Offer price includes the net asset value plus the broker’s commission.

49. 7e Mutual Funds 49 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. continued load The sales charge or broker’s commission on a mutual fund. front-end load The sales charge or commission on a mutual fund when it is paid at the time of purchase. back-end load The sales charge or commission on a mutual fund when it is paid at the time of sale.

50. 7e 50 EXHIBIT 20-6 Mutual Fund Quotation Table—The Wall Street Journal Online ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

51. 7e Reading a Mutual Fund Quotation Table 51 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Column 1 (Family/Fund Fidelity Invest/Magellan) Mutual funds are listed alphabetically by the fund’s family name and in subcategories by the various funds available within that family. The family name is Fidelity Invest and the particular fund name is Magellan. Column 2 (Symbol FMAGX) Symbol used to easily identify a particular fund. The symbol for the Fidelity Invest Magellan Fund is FMAGX. Column 3 (NAV 58.16) Net asset value; the current dollar value of one share of the fund’s stock. This is the price you receive when you sell your shares of the fund.

52. 7e Reading a Mutual Fund Quotation Table 52 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. continued Column 4 (Change –0.09) The difference, or net change, between the net asset value and the previous day’s net asset value. That day, the Fidelity Invest Magellan Fund net asset value was down $0.09. Column 5 (YTD % Return –9.5) The year-to-date percentage return on investment. That day, the Fidelity Invest Magellan Fund year-to-date return was down 9.5%. Column 6 (3-yr % Change –11.3) The 3-year percentage change in the net asset value. In the past three years, the Fidelity Invest Magellan Fund has decreased 11.3%.

53. 7e STEPS 53 STEP 1 Calculate mutual fund sales charge by subtracting the net asset value from the offer price. Mutual fund sales charge = Offer price – Net asset value STEP 2 Calculate sales charge percent by dividing the sales charge by the net asset value. Sales charge percent = TO CALCULATE MUTUAL FUND SALES CHARGE AND SALES CHARGE PERCENT ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Sales charge Net asset value

54. 7e Sales Charge and Sales Charge Percent of a Mutual Fund Example 54 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. What are the sales charge and the sales charge percent for a mutual fund with an offer price of $9.85 per share and net asset value of $9.21? Mutual fund sales charge = Offer price – Net asset value Mutual fund sales charge = 9.85 – 9.21 = $.64

55. 7e STEPS 55 STEP 1 Calculate net asset value by subtracting the total liabilities from the total assets of the fund and dividing by the number of shares outstanding. Net asset value (NAV) = STEP 2 Round the answer to dollars and cents. TO CALCULATE NET ASSET VALUE OF A MUTUAL FUND ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Total assets – Total liabilities Number of shares outstanding

56. 7e Calculating the Net Asset Value of a Mutual Fund Holding Example 56 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. A mutual fund has total assets of $12,000,000 and liabilities of $3,000,000. If there are 1,000,000 shares outstanding, what is the net asset value of the fund?

57. 7e STEPS 57 STEP 1 Calculate number of shares by dividing the amount of the investment by the offer price of the fund. For no-load funds, use the net asset value as the denominator. Number of shares purchased = STEP 2 Round the number of shares to thousandths (three decimal places). TO CALCULATE NUMBER OF SHARES PURCHASED OF A MUTUAL FUND ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Total investment Offer price

58. 7e Shares Purchased from a Mutual Fund Example 58 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Wayne has invested $10,000 in a no-load mutual fund with a net asset value of $12.25. How many shares did he purchase?

59. 7e Return on Investment 59 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. return on investment (ROI) The basic measure of how an investment is doing. Used to compare various investments on an equal basis. Calculated as a percent, by dividing the total gain on the investment by the total cost of purchase.

60. 7e STEPS 60 STEP 1 Calculate the dollar gain (or loss) on the sale of the investment by subtracting the total cost from the proceeds of the sale. Gain (or loss) on investment = Proceeds – Total cost STEP 2 Compute total gain (or loss) by adding any dividends received on stocks or interest received on bonds to the gain (or loss) on sale. Total gain (or loss) = Gain (or loss) + Dividends or interest STEP 3 Calculate return on investment by dividing the total gain (or loss) by the total cost of purchase. Round your answer to the nearest tenth percent. Return on investment (ROI) = TO CALCULATE RETURN ON INVESTMENT ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Total gain (or loss) Total cost of purchase

61. 7e Return on Investment Example 61 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Peg purchased 2,000 shares of a fund for an offer price of $8.60 per share. She later sold the shares at a net asset value of $9.18 per share. During the time Peg owned the shares, the fund paid dividends of $.27 and $.42 per share. What is Peg’s return on investment? Total cost of purchase = 2,000 x 8.60 = $17,200 Proceeds from sale = 2,000 x 9.18 = $18,360 Gain on sale = Proceeds – Total cost Gain on sale = 18,360 – 17,200 = $1,160 Dividend 1= 2,000 x.27 = $540 Dividend 2= 2,000 x.42 = + $840 Total dividends= $1,380

62. 7e Return on Investment Example 62 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. continued Total gain = Gain on sale + Dividends Total gain = 1,160 + 1,380 = $2,540