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You are considering an investment in a mutual fund with a 4% load and an expense ratio of .5%. You can invest instead in a bank CD paying 6% interest If you plan to invest for two years

  1. You are considering an investment in a mutual fund with a 4% load and an expense ratio of .5%. You can invest instead in a bank CD paying 6% interest. (LO 4-5)

    1. If you plan to invest for two years, what annual rate of return must the fund portfolio

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earn for you to be better off in the fund than in the CD? Assume annual compound- ing of returns.

    1. How does your answer change if you plan to invest for six years? Why does your

answer change?

    1. Now suppose that instead of a front-end load the fund assesses a 12b-1 fee of .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? Does your answer in this case depend on your time horizon?

Jun 18 2020 View more View Less

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