Economics Buying Mutual Funds

Abstract:

This project was performed to get a better understanding of how mutual funds work. The assignment was to select a mutual fund from three different firms. Find out information about the fund, their policies, and how much they cost. The funds' values were tracked and graphed from Monday, September 19, 2005, through Friday, November 11, 2005. The before tax rate of return must be determined for each of the funds including the costs of investments. $90,000 was divided between the three mutual funds. The three funds that were chosen were: The Vanguard 500 Index (symbol VFINX), Merrill Lynch Balanced Capital R (symbol MRBPX), and Schwab Technology Focus (symbol SWTFX). There was $30,037.75 invested in the Vanguard 500 Index fund, $30,004.80 invested in the Merrill Lynch Balanced Capital R, and $30,004.50 invested the Schwab Technology Focus. The rate of returns for all of the funds combined ended up positive.

Description of Purpose:

The purpose of the assignment is to get an understanding of engineering economy is used through a real life situation. This assignment shows how money that is invested in a mutual fund can fluctuate greatly or not fluctuate at all. This assignment helps in understanding rate of return analysis. This assignment also helps in understanding that one should make wise investments and be knowledgeable about what their money will be doing.

Statement of Process:

Three mutual funds were chosen from three different companies. Three mutual funds were chosen for their risk rating as well as their high rate of return rating on Yahoo! Finance, using Yahoo! Fund Screener and sorting the funds by highest ratings and then choosing the top three. The funds were purchased through Ameritrade using their signup special for opening an account with them. This special provided us with 35 free trades and $100 cash. The Vanguard 500 Index was chosen because it invested in many companies that make up the S&P 500 Index. The S&P 500 Index is made up of the largest US companies. This was the most expensive at $113.35 a share. The Merrill Lynch Balanced Capital R was chosen because the price was moderate. The price was $26.32 a share. This fund invests in large-cap high-quality companies. The Schwab Technology Focus fund was chosen because it is more geared to long-term growth. This was the least expensive of the funds at $4.98 a share.

The mutual funds were tracked everyday for 8 weeks. At the end of the 8 weeks the rate of return and annual percentage rate were calculated for each fund as well as the total investment. The cost of the first day of the assignment was used as the cost. In doing the rate of return analysis as well as the annual percentage rate an Excel spreadsheet was used.

Presentation and Discussion of Results:

The mutual funds that were chosen for this assignment had their weekly rate of return calculated for the entire period. The period was 8 weeks. The data from the mutual funds were inputted in an excel spread sheet and graphed. First taking the initial amount of each fund and calculating the amount of funds that were purchased then calculated the rate of return analysis. The costs of the funds were graphed verse the dates to show how much the fund fluctuates.

For the Vanguard 500 Index the rate of return was 0.05% per week and the annual percentage rate was 2.53%. This fund started to drop in value on September 30 and didn't make any recovery till October 13. From October 13 to October 27 it was unstable. From October 27 to November 11 it started to steadily go up in value. The net profit for the fund was $161.23 over the 8 weeks.

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