Please select a question, develop a complete answer,

Please select a question, develop a complete answer, and post it in the thread. You should also respond to a fellow student’s answered question by reinforcing their work or adding additional information or ask for clarification in regards to their answer.

Chapter 4:
What are the advantages and disadvantage of investing through an investment company versus buying securities directly?
Contrast open-end versus closed-end investment companies.
What is net asset value and how is rate of return measured for a mutual fund?
What is the impact of expenses and turnover on mutual fund performance?

ANSWER

Net Asset Value

Net asset value is typically described as the value of a fund’s asset less the original value of its liabilities per unit. It is frequently associated with mutual funds and essential to an investor in getting to know whether the funds are overvalued or undervalued. Concerning the open-end funds, net asset value plays a significant role as it gives the fund’s value that an investor will be liable to at the period of withdrawal of the investment (Gordon & Gandia, 2014). In a situation of a closed-end fund, that is consequently mutual fund with a strict number of units, price per unit is calculated through the market and is either smaller or above the net asset value.

Also, it plays a similar role in looking up an organization’s stock price as it is a sign of how much a person shares a mutual fund or exchange-business fund is worth. It is essential as it can assist investors to make a comparison of the different funds or compare the performance of single finance to other company benchmarks. A return is considered as the dimension of how much an investment has escalated or reduced in value over a specific time range (Petajisto, 2013). Notably, an annual return is considered as the percentage through which it intensified or decreased within twelve months. Therefore, the rate of return for a mutual fund in net asset value is measured through finding the difference that exists between assets and liabilities and then dividing it with the number of existing shares (NAV= (assets – liabilities) / number of current shares.

References

Gordon, J. N., & Gandia, C. M. (2014). Money Market Funds Run Risk: Will Floating Net Asset Value Fix the Problem. Colum. Bus. L. Rev., 313.

Petajisto, A. (2013). Active share and mutual fund performance. Financial Analysts Journal69(4), 73-93.

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