Question
You are considering an investment in a mutual fund with a 3% load and expense ratio of 0.1%. You can invest instead in back CD
You are considering an investment in a mutual fund with a 3% load and expense ratio of 0.1%. You can invest instead in back CD paying 2% interest.
A) If you plan to invest for 4 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 return.
B) What annual rate of return must the fund portfolio earn if you plan to invest for 7 years to be better off in the fund than in the CD?
C) Now suppose that instead of a front-end load the fund assesses a 12b-1 fee of 0.80% 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?
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Principles Of Managerial Finance
Authors: Lawrence J. Gitman, Chad J. Zutter
13th Edition
9780132738729, 136119468, 132738724, 978-0136119463
