FRL315_Study Guide for Final Exam_student COPY

FRL315_Study Guide for Final Exam_student COPY - Chapter 23...

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Chapter 23 Mutual Funds Overview 1. What is a mutual fund? What is the difference between mutual funds and depository institutions? Mutual fund serves as a financial intermediary by pooling investments by individual investors and using the funds to accommodate financing needs by governments and corporations in the primary market -Mutual funds repackage the proceeds from individuals to make various types of investments -Investing in mutual funds represents partial ownership-> Investors share the gains or losses generated by the fund 2. Know the difference between open-end funds and close-end funds. Open-end funds: open to investment from investors at any time; number of shares is always changing; have some cash on hand in case redemptions exceed investments on a given day; Investors can purchase shares directly from the open-end fund at any time; consist many different categories Close-end funds: Never repurchase shares they sell; investors have to sell the shares on a stock exchange; remain constant number of outstanding shares; Focus primarily on bonds and other debt securities 3. What is exchange traded funds? Designed to mimic particular stock index and are traded on a stock exchange; share price changes throughout the day; consist of a fixed number of shares; not actively managed; typically do not have capital gains and losses that must be distributed to shareholder 4. Know mutual funds regulation and taxation requirement. Mutual funds must register with the SEC and provide a prospectus; Mutual funds are regulated by state laws; if a mutual fund distributes 90 percent or more of its taxable income to shareholders, it is exempt from taxes on dividends, interest, and capital gains 5. What information is contained in prospectus? The minimum amount of investment required; the investment objective; the return on the fund over the past year, the past three years, and the past five years; The exposure of the fund to various types of risk; the services offered by the fund; the fees incurred by the find that are passed on to investors. 6. What is NAV? The net asset value of a mutual fund indicates the value per share Estimated each day by determining the market value of all securities comprising the fund, adding interest or dividends, and subtracting expenses, then dividing by the number of shares outstanding 7. What are expenses incurred by shareholders? -Mutual funds pass their expenses on to their shareholders
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FRL315_Study Guide for Final Exam_student COPY - Chapter 23...

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