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3. You are considering an investment in a mutual fund (class A) with a front-end load of4% and an expense ratio of 1.0%. You can
3. You are considering an investment in a mutual fund (class A) with a front-end load of4% and an expense ratio of 1.0%. You can invest instead in a bank CD with an interest rate of 1% per annum. (a) If you plan to invest for 2 years, what annual gross rate of return (%; before the expense ratio) must the fund portfolio earn for you to be better off in the mutual fund than in the CD? Assume annual compounding of returns (b) How does you answer change if you plan to invest for 5 years? (c) If an investor has $10,000 to invest in this fund (class A) initially and the gross rate of return is 4.5% per annum (before the expense ratio). If the investor plans to sell the fund at the end of the second year, calculate the final portfolio value (S) for the investor. (d) If Mary invests $5,000 in the Class C shares of the mutual fund from the quarter Qo to Q2, she receives the net cash inflows in both quarters Q3 and Q4 as shown below. Calculate her quarterly dollar-weighted return (1.e Q4 $8,558.16 Qi S5,000 $8,400.00
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