You are considering an investment in a mutual fund with a 7% load and expense ratio of 0.5%. You can invest instead in a bank CD paying 3% interest. a. If you plan to invest for 5 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
You are considering an investment in a mutual fund with a 7% load and expense ratio of 0.5%. You can invest instead in a bank CD paying 3% interest. a. If you plan to invest for 5 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
Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
7th Edition
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Chapter13: Investing In Mutual Funds, Etfs, And Real Estate
Section: Chapter Questions
Problem 2FPE
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Question
You are considering an investment in a mutual fund with a 7% load and expense ratio of 0.5%. You can invest instead in a bank CD paying 3% interest.
a. If you plan to invest for 5 years, what annual
Expert Solution
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Step 1
Answer
Load Rate (L) = 7%
Expenses Ration (E) = 0.5%
CD Rate = 3%
Return of Mutual Fund = R
Number of Year - 5
Total investment will be same after five years
(1 + L) * ( 1+ R - E)n = (1+ CD)n
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