GOALS

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