A closed-end fund starts the year with a net asset value of $27. By year-end, NAV equals $28.60. At the beginning of the year, the fund is selling at a 2% premium to NAV.
By the end of the year, the fund is selling at a 7% discount to NAV. The fund paid year-end distributions of income and capital gains of $3.00. a. What is the rate of return to an investor in the fund during the year?
The mechanics of trading mutual funds are different from those of ETFs and stocks. Mutual funds require minimum investments of anywhere from $1,000 to $5,000, unlike stocks and ETFs where the minimum investment is one share. Mutual funds trade only once a day after the markets close.
The shares of mutual funds are very liquid, easily tradeable and can be bought or sold on any day the market is open. An order will be executed at the next available net asset value (NAV), which is determined after the market close each trading day.
The NAV is calculated daily, after the market closes, in order to determine the closing market value of all the combined securities held by the fund, minus the fund's liabilities. That figure is then divided by the fund's total shares outstanding, which results in the NAV per share for that day. Buy and sell orders for that day are then executed using that NAV.
In addition to the NAV, investors need to consider the various fees or sales loads associated with mutual funds, such as front loads (commissions), deferred sales charges due upon redemption, short-term transaction and redemption fees, exchange fees and account fees.
The settlement period for mutual-fund transactions varies from one to three days, depending on the type of fund.
However, unlike other instruments such as stocks and exchange traded funds (ETFs), they are executed by the fund company rather than traded on the secondary market.
Orders can be placed to either buy or sell and can be made through a brokerage, advisor, or directly through the mutual fund. The shares of mutual funds are very liquid, easily traded, and can be bought or sold on any day the market is open.
A mutual fund is an investment company that takes money from many investors and pools it together in one large pot. The professional manager for the fund invests the money in different types of assets including stocks, bonds, commodities, and even real estate. An investor buys shares in the mutual fund.
The NAV is calculated by dividing the total value of all the assets in the portfolio, less any liabilities, by the number of outstanding shares. This is different from stocks and ETFs, wherein prices fluctuate during the trading day. An investor is buying or redeeming mutual fund shares directly from the fund itself.
The mechanics of trading mutual funds are different from those of ETFs and stocks. Mutual funds require minimum investments of anywhere from $1,000 to $5,000, unlike stocks and ETFs where the minimum investment is one share. Mutual funds trade only once a day after the markets close.
Trading shares in mutual funds are different from trading shares in stocks or exchange-traded funds (ETFs). The fees charged for mutual funds can be complicated. Understanding these fees is important since they have a large impact on the performance of investments in a fund.
The price for the shares in a mutual fund is determined by the net asset value (NAV) calculated after the market closes. The NAV is calculated by dividing the total value of all the assets in the portfolio, less any liabilities, by the number of outstanding shares. This is different from stocks and ETFs, wherein prices fluctuate during the trading day.
Mutual funds are often attractive to investors because they are widely diversified. Diversification helps to minimize risk to an investment.
Bond funds hold fixed-income securities as assets. These bonds pay regular interest to their holders. The mutual fund makes distributions to mutual fund holders of this interest. Stock funds make investments in the shares of different companies.
a. NAV = Market value of assets - market value of liabilities / shares outstanding
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a. NAV = (Market value of assets - market value of liabilities) / shares outstanding -->
A closed-end fund starts the year with a net asset value of $27. By year-end, NAV equals $28.60. At the beginning of the year, the fund is selling at a 2% premium to NAV. By the end of the year, the fund is selling at a 7% discount to NAV. The fund paid year-end distributions of income and capital gains of $3.00.
The cutoff rate of return is lower for the six year investment because the "fixed cost" (i.e., the one-time front-end load) is spread out over a greater number of years.
Seven years ago, Stan purchased 10 shares of an aggressive growth mutual fund at $90 per share, for a total of $900. Today he sold all 10 shares for $4,500. What was his average annual rate of return on this investment, before tax?
2. An investment with a negative NPV should be accepted because it is saving the client money.
Mitt was injured by a bus called "Move Forward." He won a lawsuit and will receive $10,000 per month, at the beginning of each month, for the next 10 years. How much must "Move Forward" deposit into an account earning 5%, compounded monthly, to satisfy this judgment?
A 529 Savings Plan allows for front loading, but a Coverdell does not.