Mutual funds charge an annual fee, called the expense ratio, that usually ranges from about 0.4% to about 1.4% of the amount of money in the account at the end of the year. For instance, if the expense ratio is 0.5% and there is $10,000 in the account at the end of the year, then there would be a charge of 0.005 10000 = $50 in fees. Suppose that John puts $7,000 at the beginning of each year into an IRA and that the funds are invested in a mutual fund earning 5% per year, before expenses. How much more will John have at the end of 12 years if the mutual fund has an expense ratio of 0.4%, as opposed to 1.4% ? John will have $more at the end of 12 years (Round to the nearest cent as needed.)
Mutual funds charge an annual fee, called the expense ratio, that usually ranges from about 0.4% to about 1.4% of the amount of money in the account at the end of the year. For instance, if the expense ratio is 0.5% and there is $10,000 in the account at the end of the year, then there would be a charge of 0.005 10000 = $50 in fees. Suppose that John puts $7,000 at the beginning of each year into an IRA and that the funds are invested in a mutual fund earning 5% per year, before expenses. How much more will John have at the end of 12 years if the mutual fund has an expense ratio of 0.4%, as opposed to 1.4% ? John will have $more at the end of 12 years (Round to the nearest cent as needed.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Mutual funds charge an annual fee, called the expense ratio, that usually ranges from about 0.4% to about 1.4% of
the amount of money in the account at the end of the year. For instance, if the expense ratio is 0.5% and there
is $10,000 in the account at the end of the year, then there would be a charge of 0.005 10000 = $50 in fees.
Suppose that John puts $7,000 at the beginning of each year into an IRA and that the funds are invested in a mutual
fund earning 5% per year, before expenses. How much more will John have at the end of 12 years if the mutual fund
has an expense ratio of 0.4%, as opposed to 1.4% ?
John will have $more at the end of 12 years
(Round to the nearest cent as needed.)
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