3. You are considering to invest in a mutual fund with a 4% load and an expense ratio of 0.5%.  Alternative, you may invest in a bank certificate of deposit (CD) paying 6% interest. a. If you plan to invest for 2 years, what annual rate of return must the mutual fund earn so that the result will be better than making investment in the CD ?  Assume annual compounding of returns. b. How does your answer change if you plan to invest for 6 years ? c. Now suppose that instead of a front-end load, the mutual fund charges a fee of 0.75% per year.  What annual rate of return must the mutual fund earn so that the result will be better than making investment in the CD ?  Does your answer in this case depend on your time horizon ?

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
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ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Chapter12: Investing In Stocks And Bonds
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Problem 1FPE: What makes for a good investment? Use the approximate yield formula or a financial calculator to...
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3. You are considering to invest in a mutual fund with a 4% load and an expense ratio of 0.5%.  Alternative, you may invest in a bank certificate of deposit (CD) paying 6% interest.
a. If you plan to invest for 2 years, what annual rate of return must the mutual fund earn so that the result will be better than making investment in the CD ?  Assume annual compounding of returns.
b. How does your answer change if you plan to invest for 6 years ?
c. Now suppose that instead of a front-end load, the mutual fund charges a fee of 0.75% per year.  What annual rate of return must the mutual fund earn so that the result will be better than making investment in the CD ?  Does your answer in this case depend on your time horizon ?
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