Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are considering an investment in a no-load mutual fund; the fund charges a 12b-1 fee of 0.5% per year as well as an operating

You are considering an investment in a no-load mutual fund; the fund charges a 12b-1 fee of 0.5% per year as well as an operating expense ratio of 1% per year. Alternatively, you can invest instead in a bank saving account paying 7% interest. If you plan to invest for five years, and the mutual fund promise that the fund portfolio will earn 8% per year in the first three years, then what annual rate of return must the fund portfolio earn in year 4 and year 5 for you to be better off in the fund than in the bank saving account? Assume annual compounding of returns.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Personal Financial Planning

Authors: Lawrence J. Gitman, Michael D. Joehnk, Randy Billingsley

13th edition

1111971633, 978-1111971632

More Books

Students also viewed these Finance questions