How Do You Understand Mutual Fund Bond Yields?
Mutual funds are investment vehicles that allow investors to pool assets together in order to invest as one collective group. Bond mutual funds not only offer a total return if you sell them higher than the purchase price, but also offer a yield on your investment. The yield is representative of the underlying bonds the fund manager purchases to hold in the mutual fund. There is a standard formula that bond managers use to determine the yield of a bond fund called the “30-day annualized yield.” Walking through the calculation helps you understand where the marketing information comes from. Write down the equation used to determine 30-day annualized yield: Yield = 2[((a-b/cd) + 1) ^6 -1] Determine the values of the variables in your equation. Variable “a” equals the amount of dividends and interest paid during the 30-day period. Variable “b” equals the total expenses in the period, net of reimbursements. Variable “c” equals the average number of shares per day during the 30-day period;
