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
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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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
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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