You are considering an investment in a mutual fund with a 4% load and an expense ratio of 0.5%. You can invest instead in a bank CD paying 6% interest. Required: a. If you plan to invest for two years, what annual rate of return must the fund portfolio earn for you to be better off in the fund than in the CD? Assume annual compounding of returns. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
You are considering an investment in a mutual fund with a 4% load and an expense ratio of 0.5%. You can invest instead in a bank CD paying 6% interest. Required: a. If you plan to invest for two years, what annual rate of return must the fund portfolio earn for you to be better off in the fund than in the CD? Assume annual compounding of returns. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:You are considering an investment in a mutual fund with a 4% load and an expense ratio
of 0.5%. You can invest instead in a bank CD paying 6% interest.
Required:
a. If you plan to invest for two years, what annual rate of return must the fund portfolio
earn for you to be better off in the fund than in the CD? Assume annual compounding of
returns. (Do not round intermediate calculations. Round your answer to 2 decimal
places.)
Annual rate of return
b. If you plan to invest for six years, what annual rate of return must the fund portfolio
earn for you to be better off in the fund than in the CD? Assume annual compounding of
returns. (Do not round intermediate calculations. Round your answer to 2 decimal
places.)
Annual rate of return
%
Annual rate of return
%
c. Now suppose that instead of a front-end load the fund assesses a 12b-1 fee of 0.75%
per year. What annual rate of return must the fund portfolio earn for you to be better off
in the fund than in the CD? (Do not round intermediate calculations. Round your
answer to 2 decimal places.)
%
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