Question: Evaluating Mutual Fund Performance When buying a mutual fund, you might expect to earn money through _______ (from dividends), _____ (from increases in share price

Evaluating Mutual Fund Performance

When buying a mutual fund, you might expect to earn money through _______ (from dividends), _____ (from increases in share price of the funds underlying securities), or both. You can calculate your total earnings from a given investment by determining the approximate yield. This value makes it easier to compare investment options.

Using Approximate Yield with Mutual Funds

The formula for approximate yield of an investment can look intimidating, but its just a function of three things: (1) dividends earned, (2) capital gains distributions received, and (3) change in share price. Based on the information in the table, compute the approximate yield for each of the two funds that follow.

Mutual Fund 1

Mutual Fund 2
Annual dividends and capital gains distributions $0.95 $2.65
Beginning mutual fund share price $60 $114
Ending mutual fund share price $75 $138

The approximate yield for Mutual Fund 1 is____ and the approximate yield for Mutual Fund 2 is ____ .

True or False: For these investments to be equally attractive, Mutual Fund 1 must carry a lower risk than Mutual Fund 2.

True

False

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