FM6 - Final Module Part Ii

NAGA COLLEGE FOUNDATION, INC.
M.T. Villanueva Avenue, Naga City

College of Business and Accountancy
INVESTMENT and
PORTFOLIO
MANAGEMENT
FINAL MODULE
(Part 2)
Prepared by:
MS. GERALDINE L. FELICES

Instructor
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MUTUAL FUND
“An investment in knowledge always pays the best interest.” — Benjamin Franklin
A mutual fund company is an investment company that receives money from investors for the sole
purpose to invest in stocks, bonds, and other securities for the benefit of the investors. A mutual fund is
the portfolio of stocks, bonds, or other securities that generate profits for the investor, or shareholder of
the mutual fund. A mutual fund allows an investor with less money to diversify his holdings for greater
safety and to benefit from the expertise of professional fund managers. Mutual funds are generally safer,
but less profitable, than stocks, and riskier, but more profitable than bonds or bank accounts, although its
profit-risk profile varies widely, depending on the fund's investment objective.
It is easier to pick an investment strategy, such as growth or income, with mutual funds than by buying
the individual securities, since mutual fund companies clearly specify the investment objectives of each
fund that they manage. Other advantages to investing in mutual funds is that the initial investment is
generally low, it is easy to reinvest profits, and money can be invested continually, often in amounts less
than the initial investment, such as every month. It can even be done automatically.
Mutual Fund Companies

Mutual fund companies are investment companies registered under the Investment Company Act of
1940.
Investment Adviser
Funds are managed by an investment advisor or by professional money managers under contract with the
fund to invest to achieve the specific investment objectives of the fund, such as growth or income. The
investment advisor, who could be officers of the fund or a management company, makes the daily
investment decisions for the fund, and the fund's success largely depends on their ability.
The initial contract is for 2 years, and must be approved by the board of directors and the shareholders.
Afterwards, the contract must be renewed annually by the approval of the board of directors or the
shareholders.
The prospectus lists the name of the investment adviser, their location, the term of their contract, and
their principle duties and responsibilities. Their typical management fee is ½% of the funds’ assets.
Board of Directors
Every investment company must have a board of directors, with no more than 60% of the board consisting
of insiders, and at least 40% consisting of individuals who have no affiliation with the company, the fund's
investment adviser, its underwriter, or any organization related to these entities.
Although the outside representation may be in the minority, several important decisions regarding the
fund require the majority approval of the outsider representation to prevent conflicts of interest.
Custodian
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A custodian, usually a bank, holds the money and securities in trust, and handles the relationships with
the investors, such as sending the monthly financial statements and proxy forms for voting. It has no part
in the investment choices or decisions of the fund.
Types of Investment Companies
The Investment Company Act of 1940 allowed the creation of 3 different types of investment companies:
1. Face-Amount Certificate Companies
2. Unit Investment Trusts
3. Management Companies
4. Open-end, which is the mutual fund.
5. Closed-end
Face-amount certificates are rare. Think of them as certificates of deposits, where you pay a lump sum or
pay in installments to face-amount certificate companies, who are the issuers of the certificates, in
exchange for the face value of the certificate at maturity, or a surrender value if surrendered earlier. The
difference between what you pay in and what you receive at maturity is the interest that you earned by
purchasing the certificates. The face-amount certificate company earns money by investing the proceeds
into other securities, much as a life insurance or management company does, which is why it is regulated
under the Investment Company Act. However, unlike certificates of deposit, they are not FDIC insured, so
it is possible to lose your entire investment. However, you may earn higher interest rates than would be
possible to earn in a FDIC insured account. In fact, some companies that still issue them, such
as Ameriprise Financial, also issue certificates whose return is linked to the stock market. If you are
interested, you can get much more detail about how face-amount certificates work by reading
this prospectus for Ameriprise Certificates.
Unit investment trusts are investment companies with trustees, but without a board of directors, that
issue securities representing an undivided interest in the principal and income of a fixed portfolio of
securities, usually consisting of bonds, but may also include mortgage-backed securities, or preferred or
common stock. Unit investment trusts terminate either when the bonds mature or on a specified date.
These securities trade just like stock or closed-end mutual funds. Many exchange-traded funds are
organized as unit investment trusts.
Management Companies
The companies that operate mutual funds are called management companies in the Investment Company
Act, and are classified as:
Open-end investment companies — commonly called mutual fund companies — which offers shares
continuously and stands ready to redeem them,
and the closed-end investment company, which makes a 1-time offering of shares, which are securities
that can be traded like stock, but the company does not redeem the securities.
Open-End Mutual Funds

Most mutual funds are open-end funds, which sells new shares continuously or buys them back from the
shareholder (redeems them), dealing directly with the investor (no-load funds) or through broker-dealers,
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who receive the sales load of a buy or sell order. The purchase price is the net asset value (NAV) at the
end of the trading day, which is the total assets of the fund minus its liabilities divided by the number of
shares outstanding for that day.
Net Asset Value Formula
Total Assets
– Total Liabilities
Net Asset Value =
Number of Outstanding Shares
The number of shares of an open-end fund varies throughout its existence, depending on how many
shares are bought or redeemed by investors.
A major disadvantage to open-end funds is that they need cash to redeem their shares for investors who
want out, so they either have to have a lot of cash on hand, which earns only the current prevailing interest
rate, or they have to sell securities to raise the cash, possibly generating capital gains taxes for the
remaining investors of the fund.
Closed-End Mutual Funds
Closed-end mutual funds, also known simply as close-end funds (CEFs), sell their shares in an initial public
offering (IPO), based on an advertised investment objective, such as for income or growth. The proceeds
of the sale are then used to buy securities based on that investment objective. The CEF shares represent
an interest in the portfolio of securities held by the closed-end investment company. The shares have a
net asset value, just as open end mutual funds, but the closed-end investment company does not redeem
the shares. Instead, the shares are traded on a stock exchange, just like stocks. Usually, when the shares
are first offered, they are sold at a premium to their NAV. However, in the secondary market, the shares
often sell at a discount to their NAV, because share price depends on the supply and demand of the
market. Since there is no method available to exchange CEF shares for their underlying securities,
arbitrage cannot be used to equalize the CEF share price to its NAV.
Exchange Traded Funds (ETF)
Closely related to mutual funds, and sometimes organized as unit investment trusts, exchange traded
funds, sometimes called exchange listed portfolios, exchange index securities, exchange shares, or listed
index securities, are like closed-end mutual funds in that they are based on a portfolio of securities
representing a category or an index and are traded like stocks on organized stock exchanges.
ETFs differ from closed-end funds in that ETFs have an arbitrage mechanism that allows certain market
makers or institutional investors, who have signed Participating Agreements with the fund sponsor,
called Authorized Participants (also called creation unit holders), to exchange the basket of securities
for creation units consisting of 50,000 ETF shares or a multiple thereof. The exchange involves only
securities — no cash — which reduces capital gains taxes for shareholders. Only Authorized Participants
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can create and redeem ETF shares with the fund sponsor, and they also sell the ETF shares they create on
the exchanges to retail investors.
When the ETF share price is significantly higher than the NAV, then Authorized Participants can buy the
basket of securities on the open market, exchange the securities for ETF shares, then sell the shares on
the market for a profit, which is how ETF shares are created. When the NAV is significantly higher, then
the Authorized Participants trade their ETF shares for the basket of securities, then sell the securities on
the exchanges for a profit, which is how ETF shares are destroyed. This process keeps the ETF share price
and NAV approximately, but not exactly, equal, because it takes time and expense to profit from this
difference through arbitrage, and the market supply and demand for both ETFs and their underlying
securities, with the concomitant affect on prices, change constantly and quickly.
Like stocks and shares of closed-end mutual funds, but unlike open-end mutual funds, exchange-traded
funds:
1. can be bought anytime during market hours,
2. can be ordered conditionally by setting limit orders,
3. prices are based on market supply and demand for the shares rather than the underlying NAV,
4. can be shorted even on a downtick,
5. can be bought on margin,
6. and options —calls and puts— can be based on them.
Expenses are very low, from .09% to .65%, because the securities that comprise the fund are not traded
very often, and thus, do not generate capital gains tax liabilities for investors that results from such trades
in a regular mutual fund or even a closed-end fund.
Generally, an index ETF will do better than a index mutual fund based on the same index because of
slightly lower expenses, but only if very few investments are made, because buying an ETF must be done
through a broker who charges a commission. For an investor that makes frequent contributions, an index
mutual fund would be much cheaper, and the fund would allow automatic reinvestment of income.
However, there are some brokers who charge minimum fees for buying ETFs by consolidating such
purchases into 1 large block trade. So it helps to shop around when you do decide to invest in an index
fund.
The first ETF, created by the American Stock Exchange in 1993, was the Standard & Poor's Depositary
Receipts Trust, usually called a SPDR, or spider (ticker: SPY), and is based on the S&P 500 index. Two other
major ETFs are the QQQQ (nickname: qubes) based on the NASDAQ 100, and the DIA (nickname:
diamonds) based on the Dow Jones Industrial Average.
Evaluating a Mutual Fund

When a mutual fund is created, the founders decide what market strategies to pursue and its investment
objectives. A required prospectus is prepared for potential investors that details the company's objectives,
expenses, fees, and management, so that an investor can make an informed decision about the mutual
fund. When an investor buys the shares of the mutual fund, he becomes a shareholder of the company,
with the same rights and privileges as a shareholder of any other company. For more info, read Mutual
Fund Prospectus.
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Fees
Mutual Fund Fees and Expenses

Many fees associated with specific activities may total from .5% to 8.5%, the legal maximum. Management
fees are annual charges for administering the fund, which varies from about .5% to 2%. Distribution and
service fees (12b-1 fees) cover marketing expenses to bring in new investors, and may be used to pay
bonuses for employees. Redemption fees, sometimes called a deferred sale load or back load fees, are
assessed when shares of the fund are sold, to discourage frequent trading, unless the investor has held
the shares for a minimum of time, specified in the prospectus. Reinvestment fees can be charged if the
investor reinvests his profits in the fund. Exchange fees can be charged if an investor transfers his money
from one fund to another within the same company.
No Load Mutual Fund Fees

No load funds do not charge a front-end sales charge or a deferred sales charge, such as a CDSC. FINRA
rules also require that the 12b-1 fees not exceed 0.25% of the fund's average annual net assets in order
to call itself a no load fund.
Classes of Mutual Fund Shares

Many mutual fund shares are classified according to the services provided the shareholders or distribution
arrangements, with different fees and expenses and a different payment schedule that apply to
each class. However, investment objectives and the portfolio secured of securities is the same for all
classes, but because of the different expenses and when they are charged, there may be a slight difference
in the performance of each class, depending on how long the fund is held and what class was purchased.
This multi-class structure enables the investor to choose a class with fees and expenses that will yield the
greatest benefit for the investor's expected holding time. More information about fees and expenses can
be found in Mutual Fund Fees and Expenses. The following gives a sample of f:
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An example of share classes and the accompanying fees and expenses from an actual mutual fund
prospectus:
Expense Ratio
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Operating expenses, such as management fees, 12b-1 fees, and administrative fees, but not
including transaction costs in the buying and selling of securities or fund shares (sales loads), can be
summarized by the expense ratio:
Mutual Fund Expense Ratio Formula
Total Operating Expenses

Expense Ratio =
Average Net Asset Value
The expense ratio is an important metric when comparing funds, because it can make a significant
difference over time. Any money paid for expenses is money that is not invested and earns no profit. High
expenses are not proportional to better management. In fact, frequently, high-expense funds
underperform index funds, which are minimally managed and have very low expense ratios. A fund's
managers can become rich simply by collecting expenses, even as the fund's NAV declines!
An example of a mutual fund fee table.
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Investment Tips:
Buy an index fund or an exchange-traded fund (ETF). Fund managers rarely do better consistently.
Select an index fund or ETF with the lowest fees, since, if all other factors are equal, it will have the highest
return among funds of the same index.
Measuring Mutual Fund Performance

A mutual fund can be measured in various ways. Three common metrics are:
1. Net Asset Value (NAV) change. The NAV is the share price of the fund, obtained by dividing the
value of the fund's holdings by the number of outstanding shares. The share price is what you
would have to pay to buy into the mutual fund, plus any fees. The change in NAV, reported at the
end of every market day, reflects the increase or decrease in the value per share.
Net Asset Value (NAV) Formula
Value of Fund
Net Asset Value (NAV) =
Number of Shares
Net Asset Value (NAV) Example
$100,000,000 total fund value

= $10 per share
10,000,000 shares
2. Yield percentage is the amount of income from dividends and interest divided by the NAV, or price
per share. A mutual fund yield can be easily compared to a bond yield.
Mutual Fund Yield Formula
Income Distribution per Share

Yield % =
Price per Share
Mutual Fund Yield Example
$.60 income per share

= 6% yield
$10 per share
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3. Total return is the current value of shares plus all distributions taken as cash minus the initial
investment.
Mutual Fund Total Return Formula
Current Value of Shares

Total Profit or Loss = + Cash Distributions
– Initial Investment
Mutual Fund Total Return Example
$12,000 current value of shares

+ $3,000 total cash distributions = $9,000 Profit
– $6,000 initial investment
Investing in a Mutual Fund
Buying Mutual Fund Shares

An investor has a choice of buying shares of the mutual fund directly, or through a financial agent, such
as a broker or a bank. Buying through an agent will generally cost more, and oftentimes, an agent will
push funds that his company sponsors or earns the highest commission for the agent rather than what's
best for the client. There are, however, good tools on the Web for finding funds that satisfy certain criteria.
Prospectus Finder — Find and download a prospectus for any U.S. fund. Most are in PDF format.
Profiting from a Mutual Fund

A mutual fund earns money from dividends and interest, and by selling securities. Profits are paid to
investors through distributions. Income distributions are based on profits from dividends and interest,
while capital distributions are from profits from the sale of securities. The schedule of payouts differ
according to company. Typically, income is distributed quarterly, while capital distributions are paid out
once a year, usually in December.
Instead of receiving distributions, profits can be reinvested, but investors must pay tax on profits, whether
it is distributed or reinvested. Income distributions are taxed as ordinary income, while capital
distributions are taxed as capital gains.
An investor can also profit by selling shares back to the fund — redeeming the shares. Such sales are taxed
as capital gains in the year they are sold. Depending on the mutual fund and the share class, there may
be a deferred sales load on the redemption.
Regulation of Mutual Fund Companies
The Securities and Exchange Commission (SEC) monitors and regulates all mutual fund companies
registered under the Investment Company Act of 1940. Mutual fund companies are also regulated by
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the Financial Industry Regulatory Authority (FINRA). Each state also has security regulations that may
apply to mutual fund companies doing business in that state.
Most mutual funds are also regulated investment companies that comply with Sub-Chapter M of the
Internal Revenue Code, which requires that the company must distribute at least 90% of its net investment
income and 90% of its net capital gains to its shareholders to avoid corporate taxation of the distributions.
Investment companies do, however, have to pay tax on undistributed income. If the investment company
retains more of its income than is required to be distributed, then it is subject to a nondeductible 4%
excise tax.
If a mutual fund is also a diversified management company, which most are, then at least 75% of its
portfolio must consist of securities where no individual issue composes more than 5% of the fund's total
assets, and that does not compose more than 10% of the voting stock of any single issuer. The other 25%
of the fund is not so restricted.
What to Consider When Buying Mutual Fund Shares
Before buying many shares from a fund with a front-end sales load, check for breakpoints that could lower
the sales load percentage.
No-Load Funds may have Fees for Purchasing or Selling Shares
No-load funds do not charge a sales load, which is technically a sales commission to a broker for selling
the shares, and therefore the no-load category may include fees that are not technically sales loads, such
as purchase fees, redemption fees, exchange fees, and account fees. No-load funds will also have
operating expenses.
Lower Fees and Expenses Increases Total Returns and Yields; Higher Expenses Lowers Returns
Small differences in fees can translate into large differences in returns over time. For example, if you
invested $10,000 in a fund that produced a 10% annual return before expenses and had annual operating
expenses of 1.5%, then after 20 years you would have roughly $49,725. But if the fund had expenses of
only 0.5%, then you would end up with $60,858 — an 18% difference.
Closet Index Mutual Funds — Active Share Percentage of a Mutual Fund

WSJ.com - Professors Shine a Light Into 'Closet Indexes'
It seems that some mutual funds that are supposed to be actively managed, aren't, but the managers are
getting paid fees as if they are. A closet indexer is a mutual fund "manager" who runs a fund that charges
a high fee, supposedly for active management, but that really is mostly composed of funds in an index,
and, thus, the fund, after subtracting fees and expenses, lags the index.
Antti Petajisto and Martijn Cremers from the Yale School of Management have quantified how much a
mutual fund really mirrors an index by comparing the components of an index with the holdings of mutual
funds, as reported to the Securities and Exchange Commission. The active share of the fund is a measure
of the overlap between an index and the fund's holdings. The more the fund differs from the index, the
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greater the active share. A closet index fund is defined as one where the active share is less than 60%—
the smaller the percentage, the less actively managed it is.
It was found that funds with an active share greater than 70% beat their benchmark index by 1.39%, but
those funds that closely mirrored the funds returned 1.41% less because of high fees. It was also found
that the bigger the fund became, the more it mirrored the index.
If a fund does not do considerably better than an index, then it makes sense to buy an index fund with
very low expenses, such as the Vanguard funds.
How Buying and Selling by Mutual Funds Affects the Stock Market
How Fund Rankings Can Cause Stocks to Gyrate - New York Times
Fire sales and forced purchases — a new study shows how mutual funds because booms and busts in
stock prices. Consider this explanation for the Internet stock bubble: technology sector funds initially
outperform the market, then they receive large new infusions of cash from investors, which the sector
funds promptly invest in their sector, causing the price to rise even more, then initiating another round of
fresh infusion of cash, which is again invested in the sector, until...BUST! Nothing keeps going up forever.
The technology sector starts to underperform, people move their money out of the funds, forcing the
funds to sell technology stocks to pay for redemptions, causing the funds to underperform even more,
causing more people to redeem their shares, forcing the funds to sell even more shares to pay for
redemptions. Bottom! Nothing keeps going down forever.
EXERCISES
1. The following are the assets and liabilities of a mutual fund:
Cash (including near cash items) P5,220,000

Stock investments
Book value 15,500,000
Market value 13,600,000
Bond investment
Book value 8,500,000
Market value 8,700,000
Interest receivable 130,000
Dividends receivable 175,000
Payables:
Management fees 110,000
Purchase of investment 860,000
Redemption fee 225,000
Accrued expenses 105,000
Number of shares outstanding 600,000
Required: Compute for the NAVPS
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2. Trump has investable cash and would like to but shares of stock of Summit Balanced Fund. The
NAVPS of the Summit stock is P205. Sales fee is 2.5% based on the NAVPS.
Required: What is the maximum number of shares that Trump can buy?
3. Use information in question #2.

What is the maximum number of shares that Trump can buy if the sales fee is 3% and it is based
on the public offering price?
AMORTIZATION TABLE
What Is Amortization?
Amortization refers to how loan payments are applied to certain types of loans. Typically, the monthly
payment remains the same and it's divided between interest costs (what your lender gets paid for the
loan), reducing your loan balance (also known as paying off the loan principal), and other expenses like
property taxes.
Your last loan payment will pay off the final amount remaining on your debt. For example, after exactly
30 years (or 360 monthly payments), you’ll pay off a 30-year mortgage. Amortization tables help you
understand how a loan works and they can help you predict your outstanding balance or interest cost at
any point in the future.
How Amortization Works
The best way to understand amortization is by reviewing an amortization table. If you have a mortgage,
the table was included with your loan documents.
An amortization table is a schedule that lists each monthly loan payment as well as how much of each
payment goes to interest and how much to the principal. Every amortization table contains the same kind
of information:
 Scheduled payments: Your required monthly payments are listed individually by month for the
length of the loan.
 Principal repayment: After you apply the interest charges, the remainder of your payment goes
toward paying off your debt.
 Interest expenses: Out of each scheduled payment, a portion goes toward interest, which is
calculated by multiplying your remaining loan balance by your monthly interest rate.
Although your total payment remains equal each period, you'll be paying off the loan's interest and
principal in different amounts each month. At the beginning of the loan, interest costs are at their highest.
As time goes on, more and more of each payment goes towards your principal and you pay
proportionately less in interest each month.
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Gather the information you need to calculate the loan’s amortization. You’ll need the principal amount
and the interest rate. To calculate amortization, you also need the term of the loan and the payment
amount each period. In this case, you will calculate monthly amortization.[1]
 The principal is the current loan amount. For example, say you are paying off a 30-year
mortgage. If your loan has a balance outstanding of $100,000 (not counting any accrued
interest), that is the principal.
 Your interest rate (6%) is the annual rate on the loan. To calculate amortization, you will
convert the annual interest rate into a monthly rate.
 The term of the loan is 360 months (30 years). Since amortization is a monthly calculation in
this example, the term is stated in months, not years.
 Your monthly payment is $599.55. The dollar amount of the payment stays constant. However,
the portion of the payment that is principal or interest will change. You will mostly be paying
off the interest when you start making payments, and then your payments will start to go to
the balance.
Set up a spreadsheet. This calculation has a few moving parts and would best be accomplished in a
spreadsheet where you've pre-loaded all your relevant info into column headings like: Principal, Interest
Payment, Principal Payment, and Ending Principal.
 The total number of rows below those headings would be 360 to account for each monthly
payment.
 A spreadsheet makes the calculations significantly quicker because, if done correctly, you only
have to enter a given equation once (or twice, as when you are using the previous month's
calculation to fuel all subsequent calculations).
 Once entered correctly, simply drag your equation(s) down through the remaining cells to
compute amortization over the life of the loan.
 Even better is to set aside a separate set of columns and input your main loan variables (e.g.
monthly payment, interest rate) as this will allow you to quickly visualize how changes will affect
each other over the life of the loan.
 You can also try an online amortization calculator.
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Calculate the interest portion of the monthly payment for month one. This calculation requires several
steps. You need to convert the interest rate to a monthly amount. The monthly rate is used to compute
how much interest you will pay for the month.[2]
 Loans that amortize, such as your home mortgage or car loan, require a monthly payment. As a
result, you need to compute the interest and principal portion of each payment on a monthly
basis.
 Convert the interest rate to a monthly rate. That amount is: (6% divided by 12 = 0.005 monthly
rate).
 Multiply the principal amount by the monthly interest rate: ($100,000 principal multiplied by
0.005 = $500 month’s interest).
 You can use the equation: I=P*r*t, where I=Interest, P=principal, r=rate, and t=time.
Compute the principal portion of the payment for month one. Subtract the interest for the month from
the first payment to compute the principal payment amount.
 Subtract the month’s interest from the payment amount to calculate the principal payment:
($599.55 payment - $500 interest = $99.55 principal payment).
 As more principal is repaid, the interest due on your principal balance each month will decline. A
larger portion of each monthly payment will go toward principal repayment.
Use the new principal amount at the end of month one to calculate amortization for month two. Each
time you calculate amortization, you subtract the principal amount repaid in the prior month.[3]
 Calculate the principal amount for month two: ($100,000 principal - $99.55 principal payment =
$99,900.45).
 Compute the interest for month two: ($99,900.45 principal X 0.005 = $499.50).
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Determine the principal repayment for month two. Just as you did in month one, your interest for the
month is subtracted from the total monthly loan payment. The remaining amount is your principal
repayment for the month.[4]
 Calculate the principal payment in month two: ($599.55 - $499.50 = $100.05).
 The principal repayment in month two ($100.05) is larger than month one ($99.55). Since the total
principal balance declines each month, you pay less interest in the balance. In month one the
interest was $500. In month two, the interest was only $499.50.
 As the required interest payment declines, the portion of the payment that goes toward principal
increases.
Sample Amortization Table
Sometimes it’s helpful to see the numbers instead of reading about the process. The table below is known
as an amortization table (or amortization schedule). It demonstrates how each payment affects the loan,
how much you pay in interest, and how much you owe on the loan at any given time. This amortization
schedule is for the beginning and end of an auto loan. This is a $20,000 five-year loan charging 5% interest
(with monthly payments).
Month Balance (Start) Payment Principal Interest Balance (End)
1 $ 20,000.00 $ 377.42 $ 294.09 $ 83.33 $ 19,705.91
2 $ 19,705.91 $ 377.42 $ 295.32 $ 82.11 $ 19,410.59
3 $ 19,410.59 $ 377.42 $ 296.55 $ 80.88 $ 19,114.04
4 $ 19,114.04 $ 377.42 $ 297.78 $ 79.64 $ 18,816.26
.... .... .... .... .... ....
57 $ 1,494.10 $ 377.42 $ 371.20 $ 6.23 $ 1,122.90
58 $ 1,122.90 $ 377.42 $ 372.75 $ 4.68 $ 750.16
59 $ 750.16 $ 377.42 $ 374.30 $ 3.13 $ 375.86
60 $ 375.86 $ 377.42 $ 374.29 $ 1.57 $ 0
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Amortization Table
To see the full schedule or create your own table, use a loan amortization calculator. You can also use an
online calculator or a spreadsheet to create amortization schedules.
Types of Amortizing Loans

There are numerous types of loans available, and they don’t all work the same way. Installment loans are
amortized and you pay the balance down to zero over time with level payments. They include:
 Auto loans: These are often five-year (or shorter) amortized loans that you pay down with a fixed
monthly payment. Longer loans are available, but you'll spend more on interest and risk
being upside-down on your loan, meaning your loan exceeds your car's resale value if you stretch
things out too long to get a lower payment.
 Home loans: These are often 15-year or 30-year fixed-rate mortgages, which have a fixed
amortization schedule, but there are also adjustable-rate mortgages (ARMs). With ARMs, the
lender can adjust the rate on a predetermined schedule, which would impact your amortization
schedule. Most people don’t keep the same home loan for 15 or 30 years–they sell the home
or refinance the loan at some point–but these loans work as if you were going to keep them for
the entire term.
 Personal loans: These loans, which you can get from a bank, credit union, or online lender, are
generally amortized loans as well. They often have three-year terms, fixed interest rates, and fixed
monthly payments. They are often used for small projects or debt consolidation.
Loans That Don't Get Amortized

Some loans don't have amortization. They include:
 Credit cards: With these, you can repeatedly borrow on the same card and you get to choose how
much you’ll repay each month as long as you meet the minimum payment. These types of loans
are also known as revolving debt.
 Interest-only loans: These loans don’t amortize either, at least not at the beginning. During the
interest-only period, you’ll only pay down the principal if you make optional additional payments
above and beyond the interest cost. At some point, the lender will require you to start paying
principal and interest on an amortization schedule or pay off the loan in full.
 Balloon loans: This type of loan requires you to make a large principal payment at the end of the
loan. During the early years of the loan, you’ll make small payments, but the entire loan comes
due eventually. In most cases, you’ll likely refinance the balloon payment unless you have a large
sum of money on hand.
Benefits of Amortization
Looking at amortization is helpful if you want to understand how borrowing works. Consumers often make
decisions based on an affordable monthly payment, but interest costs are a better way to measure the
real cost of what you buy. Sometimes a lower monthly payment actually means you’ll pay more in interest.
For example, if you stretch out the repayment time, you'll pay more in interest than you would for a
shorter repayment term.
17
With the information laid out in an amortization table, it’s easy to evaluate different loan options. You
can compare lenders, choose between a 15- or 30-year loan, or decide whether to refinance an existing
loan. You can even calculate how much you’d save by paying off debt early. With most loans, you’ll get to
skip all of the remaining interest charges if you pay them off early.
Don't assume all loan details are included in a standard amortization schedule. Some amortization tables
show additional details about a loan, including fees such as closing costs and cumulative interest (a
running total showing the total interest paid after a certain amount of time), but if you don't see these
details, ask your lender.
EXERCISES:
1. A man takes out a loan of $5,000 at 11.6% compounded quarterly for 4 years.
A. How large are his quarterly payments?
B. How much interest will he pay?
C. Find the annual percentage rate.
D. Prepare an amortization table.
2. A couple takes out a 30-year mortgage of $100,000 at 9.6% compounded monthly.

A. What is the size of their monthly payment?
B. How much interest will they pay?
C. Find the annual percentage rate.
D. Prepare an amortization table.
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NAGA COLLEGE FOUNDATION, INC.

M.T. Villanueva Avenue, Naga City

MS. GERALDINE L. FELICES

Mutual Fund Companies

Types of Investment Companies

Open-End Mutual Funds

Net Asset Value Formula

Closed-End Mutual Funds

Exchange Traded Funds (ETF)

Evaluating a Mutual Fund

Mutual Fund Fees and Expenses

No Load Mutual Fund Fees

Classes of Mutual Fund Shares

Total Operating Expenses

Measuring Mutual Fund Performance

Net Asset Value (NAV) Formula

Net Asset Value (NAV) Example

$100,000,000 total fund value

Income Distribution per Share

Mutual Fund Yield Example

$.60 income per share

Current Value of Shares

Mutual Fund Total Return Example

$12,000 current value of shares

Investing in a Mutual Fund

Buying Mutual Fund Shares

Profiting from a Mutual Fund

Regulation of Mutual Fund Companies

What to Consider When Buying Mutual Fund Shares

No-Load Funds may have Fees for Purchasing or Selling Shares

Closet Index Mutual Funds — Active Share Percentage of a Mutual Fund

Cash (including near cash items) P5,220,000

Required: Compute for the NAVPS

3. Use information in question #2.

How Amortization Works

Sample Amortization Table

Types of Amortizing Loans

Loans That Don't Get Amortized

2. A couple takes out a 30-year mortgage of $100,000 at 9.6% compounded monthly.

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