You expect a tax-free municipal bond portfolio to provide a rate of return of 4%. Management fees of the fund are .6%. What fraction of portfolio income is given up to fees? If the management fees for an equity fund also are .6%, but you expect a portfolio return of 12%, what fraction of portfolio income is given up to fees? Why might management fees be a bigger factor in your investment decision for bond funds than for stock funds? Can your conclusion help explain why unmanaged unit investment trusts tend to focus on the fixed-income market?

Question
Asked Mar 7, 2020
2 views

You expect a tax-free municipal bond portfolio to provide a rate of return of 4%. Management fees of the fund are .6%. What fraction of portfolio income is given up to fees? If the management fees for an equity fund also are .6%, but you expect a portfolio return of 12%, what fraction of portfolio income is given up to fees? Why might management fees be a bigger factor in your investment decision for bond funds than for stock funds? Can your conclusion help explain why
unmanaged unit investment trusts tend to focus on the fixed-income market?

check_circle

Expert Answer

Step 1

The computation is as follows:

Finance homework question answer, step 1, image 1

Step 2

Finance homework question answer, step 2, image 1

Step 3

The fee is considered as extra higher fraction of anticipated earnings for the b...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.

Related Finance Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: It has been shown that in the absence of taxes and other market imperfections, the firm value will b...

A: Dividend irrelevance theory states that the investors are not affected by the dividend policy of the...

question_answer

Q: You’ve just stumbled on a new dataset that enables you to compute historical rates of return on U.S....

A: When we expect the conveyance of returns to continue sensibly steady in the past (same urge, standar...

question_answer

Q: Taggart Transcontinental currently has a bank loan outstanding that requires it to make three annual...

A: The question is based on the concept of time value of money .The bank has allowed the borrower to sk...

question_answer

Q: You purchased 1,000 shares of the New Fund at a price of $20 per share at the beginning of the year....

A: Given information in question: - Number of share purchase              =          1000 Front end loa...

question_answer

Q: You have $12,260 to invest in a stock portfolio. Your choices are StockX with an expected return of ...

A: Return on stock X is 14.2%. Return on stock Y is 8.61%. Let the amount invested in stock X is $A. Th...

question_answer

Q: You are given the following quotes: U.S. dollar/Mexican Peso = 0.2501 U.S. dollar/Australian Dollar ...

A: To calculate the cross rate for Chines Yuan/Australian Dollar, simply divide U.S. Dollar /Australian...

question_answer

Q: [EXCEL] Zero coupon bonds: Northrop Real Estate Company management is planning to fund a development...

A: The question is based on the concept to calculate market value of a bond, using following function i...

question_answer

Q: 1. What is the Shape of the Yield Curve today? What does that suggest that the Market is pricing int...

A: “Hey, since there are multiple questions posted, we will answer first question. If you want any spec...

question_answer

Q: Companies, and governments can all borrow money using bonds. But only corporations have stockholders...

A: When companies or governments issue bonds, there is a fixed rate of return expected from the issued ...