Question

8

a) You purchased 3,200 shares in the New Pacific Growth Fund on January 2, 2016, at an offering price of $47.50 per share. The front-end load for this fund is 4 percent, and the back-end load for redemptions within one year is 2 percent. The underlying assets in this mutual fund appreciate (including reinvested dividends) by 5 percent during 2016, and you sell back your shares at the end of the year. If the operating expense ratio for the New Pacific Growth Fund is 1.83 percent, what is your total return from this investment? (Assume that the operating expense is netted against the fund’s return.) (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

b) You are going to invest in a stock mutual fund with a front-end load of 4.5 percent and an expense ratio of 1.45 percent. You also can invest in a money market mutual fund with a return of 2.3 percent and an expense ratio of 0.20 percent. If you plan to keep your investment for 2 years, what annual return must the stock mutual fund earn to exceed an investment in the money market fund? What if your investment horizon is 12 years? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)c

c)

Suppose you’re evaluating three alternative MMMF investments. The first fund buys a diversified portfolio of municipal securities from across the country and yields 3.2 percent. The second fund buys only taxable, short-term commercial paper and yields 5.4 percent. The third fund specializes in the municipal debt from the state of New Jersey and yields 3.4 percent. Your federal income tax rate is 35 percent and you are a resident of Texas, which has no state income tax.

Calculate the after-tax yield for each of the alternatives. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Municipal Fund____

Taxable Fund_____

New Jersey Municipal Fund____

Answer 1