Investing in mutual funds Flashcards
(26 cards)
All of the following are true of open-ended funds.
An open-end fund is a mutual fund whose shares are issued and redeemed by the investment company at the request of investors. Most open-end funds provide their investors with a wide variety of services. Shares of open-end funds have a variety of costs. The price you pay for a share in an open-end fund is referred to as the net-asset value.
Which of the following determines the prices for shares for closed-end funds?
Like the prices of stocks, the prices for shares for closed-end funds are determined by the factors of supply and demand, the value of stocks and other investments contained in the fund’s portfolio, and by investor expectations.
Crystal Ventures Mutual Fund contains stocks and securities valued at $476 million. The fund has liabilities that total to $6.3 million and the fund has issued 31 million shares. What is the Net Asset Value?
Net Asset Value = [(Value of Fund’s Portfolio − Liabilities) ÷ Number of Shares]
= [($476 million − $6.3 million) ÷ 31 million]
= $15.15
David invested $18,000 in the American Funds Euro-Pacific Growth fund. This fund charges a sales charge of 6.22%. What is the dollar amount of the sales charge to purchase shares?
Sales Charge (in $) = Original Investment × Sales Load Percentage
= $18,000 × 0.0622
= $1,119.60
Taliyah invested $21,000 in the American Funds Euro-Pacific Growth fund. This fund charges a sales charge of 4.35%. What is the net amount available for investment?
Sales Charge (in $) = $21,000 × 0.0435 = $913.50
Amount Available for Investment = Original Investment − Sales Charge Amount = $21,000 − $913.50 = $20,086.50
According to the video, what are the other fees that fund investors must consider in addition to a load charge?
The video provides 3 other fees that fund investors must consider in addition to a load charge, including the contingent deferred sales load, a management fee, and a 12b-1 fee.
According to the example in the video, what is located at the top of the Morningstar research report for the Vanguard 500 Index Fund?
In the Morningstar research report for the Vanguard 500 Index Fund in the video, information about the name of the fund and the fund symbol, current net asset value, yield, total assets, expenses, fees, turnover, and other statistical information is located at the top of the report.
According to the example in the video, what factors are located on the right side of the Morningstar research report for the Vanguard 500 Index Fund?
The factors located on the right side of the form are information regarding Morningstar risk measures and information about the investments within the fund in the “Style Map” section.
All of the following are tabs that you can get more information from at the top of the report
If you are using the Internet to access a Morningstar report, you can get even more information by clicking on the tabs at the top of the report including the fund analysis, performance, ratings and risk, management, stewardship, portfolio, expense, tax, and purchase information, and filing (or financial statement) tabs.
All of the following are ways that investors can make money by investing in closed-end funds, exchange-traded funds, or open-end funds
Investors can make money by investing in closed-end funds, exchange-traded funds, or open-end funds through income dividends, capital gains distributions, and capital gains from the sale of securities in their portfolio.
Lesley purchased 250 mutual fund shares at $18 per share. Lesley decided to sell her shares after the price increased to $29 per share. What is Lesley’s capital gain?
Capital Gain = (Selling Price − Purchase Price) × Number of Shares
= ($29 − $18) × 250 shares
= $2,750
All of the following are true of capital gains distributions
Capital gains distributions are payments made to a fund’s shareholders that result from the sale of securities in the fund’s portfolio. Capital gains distributions are typically paid once a year. Capital gains distributions are taxed as long-term capital gains regardless of how long you own shares in the fund. The majority of exchange-traded funds don’t usually pay end-of-the-year capital gain distributions.
The All-Star Natural Resources fund has:
Total assets $ 645 million
Total liabilities $ 3 million
Total number of shares 30 million
What is the fund’s net asset value (NAV)?
Note: Round your answer to 2 decimal places.
Net asset value = (Value of the fund’s portfolio − Liabilities) ÷ Number of shares outstanding
= ($645 million − $3 million) ÷ 30 million
= $21.40 per share
Jim Yang invested $50,000 in the American Fundamental Investors mutual fund. The fund charges a commission of 5.75 percent when shares are purchased. Calculate the amount of commission Jim must pay.
Commission (load) = Dollar amount of investment × Load stated as a percentage
= $50,000 × 5.75%
= $50,000 × 0.0575
= $2,875
As Bart Brownlee approached retirement, he decided the time had come to invest some of his nest egg in a conservative fund. He chose the Franklin Utilities Fund. If he invests $25,000 and the fund charges a load of 3.75 percent when shares are purchased, what is the amount of commission (load) Bart must pay? (Round your answer to 2 decimal places.)
Commission (load) = Dollar amount of investment × Load stated as a percentage
= $25,000 × 3.75%
= $25,000 × 0.0375
= $937.50
Martha Campbell purchased shares in the New Dimensions Utilities Fund. This fund doesn’t charge a front-end load, but it does charge a contingent deferred sales load of 5 percent for any withdrawals during the first year. If Martha withdraws $12,000 during the first year, how much is the contingent deferred sales load?
Contingent deferred sales load = Amount of withdrawal × Fee stated as a percentage
= $12,000 × 5%
= $12,000 × 0.05
= $600
The value of Matt Stewart’s shares in the New Frontiers Energy and Technology Fund is $31,500. The management fee for this particular fund is 0.70 percent of the total asset value. Calculate the management fee Matt must pay this year.
Note: Round your answer to 2 decimal places.
Management fee = Value of investment × Management fee as a percentage
= $31,500 × 0.70%
= $31,500 × 0.0070
= $220.50
Barbara and Bart Sanders invested $45,000 in the Financial Vision Social Responsibility Fund. The management fee for this fund is 0.35 percent of the total asset value. Calculate the management fee the Sanders must pay.
Note: Round your answer to 2 decimal places.
Management fee = Value of investment × Management fee as a percentage
= $45,000 × 0.35%
= $45,000 × 0.0035
= $157.50
As part of his 401(k) retirement plan at work, Donald Ring invests 6 percent of his salary each month in the Capital Investments 2045 Retirement Fund. At the end of this year, Donald’s 401(k) account has a dollar value of $223,400. If the fund charges a 12b-1 fee of 0.60 percent, what is the amount of the fee?
Note: Round your answer to 2 decimal places.
12b-1 fee = Value of investment × Fee as a percentage
= $223,400 × 0.60%
= $223,400 × 0.0060
= $1,340.40
When June Thornton received a large settlement from an automobile accident, she chose to invest $115,000 in the Vanguard 500 Index Fund. This fund has an expense ratio of 0.03 percent. What is the amount of the fees that June will pay this year?
Note: Round your answer to 2 decimal places.
Annual fee = Value of investment × Expense ratio as a percentage
= $115,000 × 0.03%
= $115,000 × 0.0003
= $34.50
The Yamaha Aggressive Growth Fund has an expense ratio of 1.78 percent.
a. If you invest $64,000 in this fund, what is the dollar amount of fees that you would pay this year?
Note: Round your answer to 2 decimal places.
Annual fee = Value of investment × Expense ratio as a percentage
= $64,000 × 1.78%
= $64,000 × 0.0178
= $1,139.20
Juan Castillo purchased 300 shares of the Hodge & Mattox Energy Fund. Each share cost $25.15. Fifteen months later, he decided to sell his shares when the share value reached $28.30.
What was the amount of his total investment?
What was the total amount Juan received when he sold his shares in the Hodge & Mattox fund?
How much profit did he make on his investment?
Total investment = Price per share × Number of shares purchased
= $25.15 × 300
= $7,545
Sale proceeds = Price per share × Number of shares sold
= $28.30 × 300
= $8,490
Profit = Sale proceeds − Total investment
= $8,490 − $7,545
= $945
Three years ago, Marge Thomas bought 200 shares of a mutual fund for $29 a share. During the three-year period, she received total income dividends of $2.76 per share. She also received total capital gain distributions of $1.90 per share during the three-year period. At the end of three years, she sold her shares for $38 a share. What was her total return for this investment?
Total return = Income dividends + Capital gain distributions + Change in share price when sold
= (200 × $2.76) + (200 × $1.90) + [200 × ($38 − $29)]
= $2,732
Assume that one year ago, you bought 80 shares of a mutual fund for $16 a share, you received a capital gain distribution of $0.45 per share during the past 12 months, and the market value of the fund is now $18 a share.
Calculate the total return for your $1,280 investment.
Calculate the percentage of total return for your $1,280 investment.
Note: Enter your answer as a percent rounded to 1 decimal place.
Total return = Income dividends + Capital gain distributions + Change in share price when sold
= $0 + (80 × $0.45) + [80 × ($18 − $16)]
= $196
Percent of total return = Dollar amount of total return ÷ Original cost of your investment
= $196 ÷ $1,280
= 0.153, or 15.3%
