(a)
To determine:
The lower cost alternative to purchase.
Introduction:
Mutual fund refers to the fund that is managed by the professionals and consists of the pool of money from various different investors in order to purchase different and various securities.

Explanation of Solution
Purchase of electronic trade funds (ETF) is relatively cheaper as compared to the regular mutual fund.
ETF has a lower ratio of expense.
Annual expense of electronic trade fund is less costly as it has percent of 0.25%.
Hence, Electronic trade funds are cheaper.
(b)
To determine:
The lower cost to own 6 months.

Explanation of Solution
Given,
Annual gain is 7%.
Investment holding time is 6 months,
Cost of mutual funds purchasing is 0.85%.
Cost of EFT annual expense is 0.25%
Transaction cost is $20.
Consider the value of investment to $10,000.
Formula to calculate cost of purchasing the mutual fund,
Substitute 0.85% for expense ratio and $10,000 for value of asset.
Cost of purchasing mutual funds is $85.
Formula to calculate cost of purchasing electronic trading fund,
Substitute 0.25% for the expense ratio, $10,000 for the value of the asset and $20 for the transaction fee.
Cost of purchasing ETF is $45.
Hence, Cost of purchasing ETF is quite less compared to mutual funds.
(c)
To determine:
The lower cost to own 2 years.

Explanation of Solution
Given,
Annual gain is 10%.
Investment holding time is 6 months,
Cost of mutual funds purchasing is 0.85%.
Cost of EFT annual expense is 0.25%
Transaction cost is $20.
Consider the value of investment to $10,000.
Formula to calculate cost of purchasing the mutual fund,
Substitute 0.85% for expense ratio and $10,000 for value of asset.
Cost of purchasing mutual funds is $85.
Formula to calculate cost of purchasing electronic trading fund,
Substitute 0.25% for the expense ratio, $10,000 for the value of the asset and $20 for the transaction fee.
Cost of purchasing ETF is $45.
Hence, Cost of purchasing ETF is quite less compared to mutual funds.
(d)
To determine:
The lower cost to own 2 years.

Explanation of Solution
Given,
Annual loss is 10%.
Investment holding time is 6 months,
Cost of mutual funds purchasing is 0.85%.
Cost of EFT annual expense is 0.25%
Transaction cost is $20.
Consider the value of investment to $10,000.
Formula to calculate cost of purchasing the mutual fund,
Substitute 0.85% for expense ratio and $10,000 for value of asset.
Cost of purchasing mutual funds is $85.
Formula to calculate cost of purchasing electronic trading fund,
Substitute 0.25% for the expense ratio, $10,000 for the value of the asset and $20 for the transaction fee.
Cost of purchasing ETF is $45.
Hence, Cost of purchasing ETF is quite less compared to mutual funds.
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Chapter 14 Solutions
PERSONAL FINANCE
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