Transcript CHAPTER 7 Insurance and Investments

7.7
Mutual Funds
GOALS
 Calculate the total investment in a mutual
fund
 Calculate the amount and rate of
commission
 Calculate profit or loss from mutual fund
investments
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Slide 1
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.
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Slide 2
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.
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Slide 3
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).
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Sample Information from
Newspaper Financial Pages
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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.
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Slide 6
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
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Lesson 7.7
Slide 7
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.
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Slide 8
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
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Slide 9
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
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Slide 10
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
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$11,170
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$11,170
$2,308
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193.948
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193.948
30.525
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0%
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