Ch 15: Assignment - Mutual and Exchange Traded Funds

Computing the net asset value of a mutual fund investment Most mutual funds invest money in hundreds of stocks, bonds, short-term securities, or other securities and assets; then, shares of the funds themselves are sold to individual investors. To understand how the value of a mutual fund's share is calculated based on the values of the assets it holds, consider the following simplified example of a mutual fund that owns shares of only four different stocks. Stock Symbol Current Market Price Number of Shares Total Value of Shares GlbEx$94.322,000$188,640.00TmRE19.771,20023,724.00MRGG75.811,10083,391.00TopLA42.2185035,878.50 You can see from the table that the market value of the fund's assets ___is . If the fund has $16,581.68 in liabilities and 10,000 shares outstanding, the net asset value (NAV) of a share in this mutual fund is ___.

$331,633.50 $31.51

Mutual funds by risk and return Risk and Return of Balanced Funds, Growth Funds, and Money Market Mutual Funds The following three fund types differ in general price volatility and potential for return: balanced funds, growth funds, and money market mutual funds. Label the graph that follows to show the relative volatility and potential return of these three fund types as they compare with one another.

Growth funds balanced funds money market mutual funds

Comparing loads and fees Alexa wants to buy shares in a mutual fund and has narrowed her selection to the following four funds. Answer the questions below to help assess each fund in terms of the fees each charges. Fund NAV Net Chg. YTD % Ret. QtrF p$13.320.043.1TmRE r$20.770.146.0MRGG r$29.810.288.5MajTrkⁿ$44.210.379.6 Suppose MajTrkⁿ charges a commission of 7%. This ___ an example of a relatively low-load fund. If Alexa purchases $3,000 worth of MajTrkⁿ shares, only $z--- will actually be invested. This means that the commission—as a percentage of the amount invested—is equal to z---. The mutual fund TmRE r is a no-load fund that imposes a ___ only when its shares are sold. Funds that charge this type of fee ___ generally be expected to outperform funds that do not charge these fees. Alexa is planning on holding her shares for at least a year and wants a fund that will cost her as little in fees as possible. If QtrF p charges a 12b-1 fee and MRGG r charges a redemption fee, then she is best off investing in which of the following funds?

is not 2790.00 7.53% deferred sales charge cannot MRGG r

Characteristics of mutual funds Characteristics of Open-End Mutual Funds Open-end mutual funds are the most common type of investment company. Which of the following statements characterize these funds? Check all that apply. 1. Make automatic reinvestment easy. 2. Allow shareholders to convert shares from one fund to another within the same fund family. 3. Always publicly traded on exchanges. 4. Good choices only if you have lots of capital to invest. 5. Convenient to own but difficult to set up. Some investment companies have products that are similar in many ways to open-end funds—with differences that can make them desirable for investors. REITs are a special kind of ___ fund that invests in a portfolio specifically focused on ___.

1. Make automatic reinvestment easy. 2. Allow shareholders to convert shares from one fund to another within Closed-end Real estate

The process of selecting a mutual fund Shen, a 35-year-old venture capitalist, recently received $10,000 from the sale of shares in a company whose growth he helped to fund. Because he already has a retirement fund and has additional funds invested in relatively safe assets, he considers this "fun money" that he can afford to lose. The following statements represent the different things Shen must consider before choosing a mutual fund (not in the correct order). Complete each statement by choosing the appropriate words or phrases, and then indicate which step in the process of choosing a mutual fund it reflects. The Process of Selecting a Mutual Fund Shen is particularly confident in the energy sector and emerging markets and not interested in the low returns associated withbond funds.Step 3 Shen's goal is to invest the money such that it will achieve above-average capital gains. He hopes for a return of upwards of 10%.Step 2 Because he already has other funds safely invested, Shen can choose an aggressive investment policy.Step 1 After establishing his portfolio, Shen will continue to monitor the performance of his funds.Step 7 Shen is a seasoned investor who likes to follow his own intuition; therefore, he decides not to seek out professional advice.Step 5 Shen uses Vanguard's fund screener to compare past performance, ratings, and services of different funds that meet his basic objective criteria.Step 6 Because he knows that funds with loads are more costly , he eliminates funds with loads.Step 4

Bond; sets 3 step 2 an agressive; step 1 continue; step 7 step 5 step 6 are more costly; eliminates; step 4

Mutual fund objectives When choosing a mutual fund, one of the most important things to consider is your investment objective. Mutual funds are classified into the following three categories: income, growth, and growth and income. The following exercises feature examples of three investors, each with one of the stated goals. Complete the paragraphs to illustrate your understanding of each mutual fund category. Income Objective Nathan is a retiree with no children who is looking to purchase a mutual fund that will provide a relatively safe investment as well as regular income payments. Among mutual funds with an income objective, Nathan can either buy shares in ___, which invest in CDs, government securities, and short-term obligations issued by corporations, or he can invest in ___ for a slightly higher current income return and the potential for capital appreciation as well. Within the category of bond funds are even more specific options. Nathan decides to buy shares in a fund that invests in Treasury issues maturing in more than ten years, known as ___ ___bonds. He is also collecting income from shares he already owns in a ___ fund, a type of fund that invests in securities issued by agencies such as Fannie Mae and Freddie Mac. Growth Objective Maggie is a 32-year-old woman with two children who owns her own home and has a substantial retirement account. She recently received an inheritance from her uncle and is looking to invest in a mutual fund that invests in stocks with market capitalization of more than $10 billion. She decides to purchase ___ shares. Growth and Income Objective Kevin is a 25-year-old engineer who plans to invest $500 from each monthly paycheck in a mutual fund. He is interested in a fund that balances current income and capital gains, but with an emphasis on capital gains, so he buys $2,000 worth of ___ shares. He would also like to put some money into a fund that divides investments wisely among different types of asset classes; therefore, he purchases shares ___ as well. One feature common to all of the above mutual funds is the systematic withdrawal plan. Based on the characteristics of the investors above, this feature would be of most interest to ___

Money Market Funds Bond Funds Long-term government mortgage-backed Large-cap fund asset allocation fund Nathan