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FIN4303test1 - There are five principal benefits of mutual...

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There are five principal benefits of mutual funds: 1. Liquidity intermediation- investors can convert their investments into cash quickly and t a low cost 2. Denomination intermediation- allows small investors access to securities they would be unable to purchase without the mutual fund 3. Diversification 4. Cost advantages 5. Managerial expertise Net Asset Value (NAV): Total value of the mutual fund’s stocks, bonds, cash, and other assets minus any liabilities such as accrued fees, divided by the number of shares outstanding 2. Higher is bank capital, lower is return on equity ROA = Net Income/Assets ROE = Net Income/Equity Capital EM = Assets/Equity Capital ROE = ROA × EM Capital , EM , ROE Closed-End Fund: a fixed number of nonredeemable shares are sold through an initial offering and are then traded in the OTC market. Price for the shares is determined by supply and demand forces. Open-End Fund: investors may buy or redeem shares at any point, where the price is determined by the net asset value of the fund. There are five primary classes of mutual funds available to investors: 1. Stock (equity) funds 2. Bond funds 3. Hybrid funds 4. Money market funds 5.Index funds Front-end load funds (class A shares) charge an upfront fee for buying the shares. Deferred load funds (class B shares) charge a fee when the shares are redeemed. No-load funds do not charge this fee. If the particular fund charges no front or back end fees, it is referred to as class C shares. contingent deferred sales charge: a back-end fee that may disappear altogether after a specific period. redemption fee: another name for a back-end load exchange fee: a fee (usually low) for transferring money between funds in the same family.
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