Finance 301 1st Edition Lecture 15Outline of Last Lecture I. Stock Market TransactionsII. Margin Trading- Stock Price IncreasesIII. Margin Trading- Stock Price DecreasesIV. Cash PurchasesV. Stock Market TransactionsOutline of Current LectureVI. Background on mutual fundsVII. Mutual funds categoriesVIII. Management of mutual fundsCurrent LectureI. Background on mutual fundsa. What is a mutual fund?i. Asset in most 401k claims, publically traded investment firm, company that invests in stocks for us the investor. Buying shares ina company that invests in a lot of stocks or bonds or bothb. Mutual funds are sometimes referred to as open-end funds. What does this mean?i. You are not trading with another investor like stocks. Mutual funds100 shares they just add 100 shares to their number of shares. Can add and subtract everyday. What they do with this money isinvest in stocks that day. Provide us diverse portfolio without us having to find each individual stock c. The price per share of a mutual fund is equal to the net asset value (NAV) per share. Priced once a dayd. Market Value = Total MV of Assets + I and D Received – Expenses and any D Paid e. Can trade mutual fund any time of the day, only change a couple cents a dayf. NAV = Market Value/ # Shares Outstanding g. Mutual Fund Distributions to Shareholders i. Funds can generate returns to their shareholders in three ways.ii. Earned income passed on iii. Earned income- dividends, coupon paymentsiv. Distribute capital gains- transfer earnings they make to usv. Share price appreciationh. Mutual funds pass their expenses to shareholders.i. What are these expenses?i. Sales Charge - Mutual funds may be referred to as either as a load fund or a no-load fund.ii. Load funds – fees take percent of your money front or back end front end means they take it out of your initial investment back end is they take it when they sell outiii. No-load funds- no feesiv. Front end load and back end load can take a lot percent of your money and invest the restj.II. Mutual funds categoriesa. Growth Funds- invest in small mid cap stocks, stock price to rise, smallerto medium sized companies, b. Income Funds- investing in large stocks with high dividend and bonds cause you know you are going to get coupon paymentsc. Growth and Income Funds- all types of stocks and bondsd. International and Global Funds- international stockse. Specialty Funds- certain sector such as transportation such as airplanes barges, or financial or technologyf. Index Funds- professors will tell you to invest in. this is a fund that’s made up of an index like a dow30 sp500g. Multifund Fundsh. Tax-Free Fundsi. High-Yield (Junk) Bond Funds- good dividends j.III. Management of mutual fundsa. Management of Mutual Fundsi. Each mutual fund is managed by one or more portfolio managers, who must focus on the stated investment objective of that fund.b. Interaction of Mutual Funds with Other Financial Institutions i. The managing of a mutual fund sometimes leads to interaction with other financial institutions.ii. Some mutual funds are owned by commercial banks.c. Mutual Fund Use of Financial Markets i. Each type of mutual fund uses one or more financial markets to manage its portfolio.ii. Multiple managers have to prove why they should but certain stocks, multiple managers and they have to make a decision iii. Mutual funds work with financial institutions first ones to get in