Suppose an individual invests $20,000 in a load mutual fund for two years. The load fee entails an up-front commission charge of 3.0 percent of the amount invested and is deducted from the original funds invested. In addition, annual fund operating expenses (or 12b-1 fees) are 1.0 percent. The annual fees are charged on the average net asset value invested in the fund and are recorded at the end of each year. Investments in the fund return 15 percent each year paid on the last day of the year. If the investor reinvests the annual returns paid on the investment, calculate the annual return on the mutual funds over the two-year investment period.
A. The individuals actual investment, after the load fee is deducted:
B. Annual operating expenses:
C. Value of investment at end of year 1:
D. The investors return on the mutual fund investment after 1 year:
E. Value of investment at end of year 2:
F. Thus the investors annual return on the mutual fund over a 2 year period:
Suppose an individual invests $20,000 in a load mutual fund for two years. The load fee entails an up-front commission charge of 3.0 percent of the amount invested and is deducted from the original funds invested. In addition, annual fund operating expenses (or 12b-1 fees) are 1.0 percent. The annual fees are charged on the average net asset value invested in the fund and are recorded at the end of each year. Investments in the fund return 15 percent each year paid on the last day of the year. If the investor reinvests the annual returns paid on the investment, calculate the annual return on the mutual funds over the two-year investment period.
A. The individuals actual investment, after the load fee is deducted:
B. Annual operating expenses:
C. Value of investment at end of year 1:
D. The investors return on the mutual fund investment after 1 year:
E. Value of investment at end of year 2:
F. Thus the investors annual return on the mutual fund over a 2 year period:
Related questions
Question 11
Advantages of mutual funds include
| A. | professional management. | |
| B. | all of these. | |
| C. | liquidity. | |
| D. | diversification. |
Question 12
Which of the following types of investment companies operates much like an index fund?
| A. | exchange-traded fund | |
| B. | unit investment trust | |
| C. | closed-end fund | |
| D. | REIT |
Question 13
A common stock fund that invests in only one industry is called a(n) ____ fund.
| A. | maximum capital gains | |
| B. | growth and income | |
| C. | index | |
| D. | sector |
Question 14
Mutual funds that charge a load do so to compensate
| A. | fund managers. | |
| B. | brokers. | |
| C. | shareholders. | |
| D. | the SEC. |
Question 15
Your first task in selecting a mutual fund is to
| A. | review your investment policy. | |
| B. | locate sources of comparative performance data. | |
| C. | eliminate funds inappropriate for your investment goals. | |
| D. | screen and compare funds that meet your investment criteria. |
Question 16
Taxes on annual earnings from mutual funds can be avoided
| A. | while those amounts are kept in an IRS-qualified retirement account. | |
| B. | as long as the mutual shares are not sold. | |
| C. | while those amounts are kept in an IRS-qualified retirement account and if those earnings are interest from municipal bonds. | |
| D. | if those earnings are interest from municipal bonds. |
Question 17
Mutual funds permit automatic income reinvestment of
| A. | ordinary income dividend distribution. | |
| B. | none of these. | |
| C. | both ordinary income dividend distributions and capital gains distributions. | |
| D. | capital gains distribution. |
Question 18
The type of mutual fund that is not actively managed is called a(n) ____ fund.
| A. | emerging market | |
| B. | money market | |
| C. | index | |
| D. | sector |
Question 19
A mutual fund that does not assess a sales charge at the time of the investment purchase is called a ____ fund.
| A. | back-end load | |
| B. | front-end load | |
| C. | low-load | |
| D. | no-load |
Question 20
Open-end mutual funds
| A. | make up about 75 percent of all mutual funds. | |
| B. | are sold only through brokers. | |
| C. | are sold at their current net asset value. | |
| D. | are sold to other investors on a secondary market. |
