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Chapter 8: Problem 44

What is a mutual fund?

Short Answer

Expert verified
A mutual fund is an investment vehicle that pools together money from multiple investors to invest in a diversified portfolio of securities such as stocks, bonds, or other assets. They are operated by money managers who aim to generate income or capital gains for the fund's investors.

Step by step solution

01

Define a Mutual Fund

A mutual fund is an investment vehicle made up of a pool of money collected from many investors to invest in securities such as stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund's investments and attempt to produce capital gains or income for the fund's investors.
02

Explain the key Components of a Mutual Fund

A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus. This is a type of investment product that the individual investor has access to various equities, bonds or other securities, which may be difficult to create on their own. Due to diversification, risk is spread across many investments.
03

Highlight the role of Money Managers

Mutual funds are managed by a portfolio manager, or a team of managers, who will make the decision to buy or sell assets in the portfolio. They monitor the performance of the mutual fund and adjust the portfolio as needed, guided by the mutual fund's investment strategy.

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Most popular questions from this chapter

Exercises 19 and 20 refer to the stock tables for Goodyear (the tire company) and Dow Chemical given below. In each exercise, use the stock table to answer the following questions. Where necessary, round dollar amounts to the nearest cent. a. What were the high and low prices for a share for the past 52 weeks? b. If you owned 700 shares of this stock last year, what dividend did you receive? c. What is the annual return for the dividends alone? How does this compare to a bank offering a \(3 \%\) interest rate? d. How many shares of this company's stock were traded yesterday? e. What were the high and low prices for a share yesterday? f. What was the price at which a share last traded when the stock exchange closed yesterday? g. What was the change in price for a share of stock from the market close two days ago to yesterday's market close? h. Compute the company's annual earnings per share using Annual earnings per share $$ \begin{array}{|c|c|c|c|c|c|c|c|c|c|c|c|} \hline \text { 52-Week High } & \text { 52-Week Low } & \text { Stock } & \text { SYM } & \text { Div } & \text { Yld \% } & \text { PE } & \text { Vol 100s } & \text { Hi } & \text { Lo } & \text { Close } & \text { Net Chg } \\ \hline 73.25 & 45.44 & \text { Goodyear } & \text { GT } & 1.20 & 2.2 & 17 & 5915 & 56.38 & 54.38 & 55.50 & +1.25 \\ \hline \end{array} $$

In Exercises 1-10, use $$ P M T=\frac{P\left(\frac{r}{n}\right)}{\left[1-\left(1+\frac{r}{n}\right)^{-n t}\right]} $$ to determine the regular payment amount, rounded to the nearest dollar. The price of a home is \(\$ 220,000\). The bank requires a \(20 \%\) down payment and three points at the time of closing. The cost of the home is financed with a 30 -year fixed-rate mortgage at \(7 \%\). a. Find the required down payment. b. Find the amount of the mortgage. c. How much must be paid for the three points at closing? d. Find the monthly payment (excluding escrowed taxes and insurance). e. Find the total cost of interest over 30 years.

What is a down payment?

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The unpaid balance of an installment loan is equal to the present value of the remaining payments. The unpaid balance, \(P\), is given by $$ P=P M T \frac{\left[1-\left(1+\frac{r}{n}\right)^{-n t}\right]}{\left(\frac{r}{n}\right)} $$ where \(P M T\) is the regular payment amount, \(r\) is the annual interest rate, \(n\) is the number of payments per year, and \(t\) is the number of years remaining in the loan. a. Use the loan payment formula to derive the unpaid balance formula. b. The price of a car is \(\$ 24,000\). You have saved \(20 \%\) of the price as a down payment. After the down payment, the balance is financed with a 5 -year loan at \(9 \%\). Determine the unpaid balance after three years. Round all calculations to the nearest dollar.
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