The Damon Investment Company manages a Mutual fund composed mostly of speculative stocks. You recently saw...

The Damon Investment Company manages a Mutual fund composed mostly of speculative stocks. You recently saw an ad claiming that investments in the funds have been earning a rate of return of 21%. This rate seemed quite high, so you called a friend who works for one of Damon’s competitors. The friend told you that the 21% return figure was determined by dividing the 2-year appreciation on investments in the fund by the average investment. In other works, $100 invested in the fund 2 years ago would have grown to $121 ($21 / $100 = 21%). Discuss the ethics of the 21% claim.

Solutions

Expert Solution

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

If you saw an advertisement for a mutual fund that consistently “beats the market” (pick stocks...

If you saw an advertisement for a mutual fund that consistently “beats the market” (pick stocks that do better than the overall market), what questions would you ask? You need to have at least three questions that you would ask for this question. 90% of mutual funds that are active and trying to “beat the market” do NOT succeed over the long-term and yet close to 50% of mutual fund assets are invested in these active funds. Why do you...

You are managing a mutual fund with the following stocks: Stock Investment Beta A $1,951 0.7...

You are managing a mutual fund with the following stocks: Stock Investment Beta A $1,951 0.7 B $2,625 0.3 What is the beta for this mutual fund (i.e. what is the portfolio beta)?

Consider a mutual fund that manages a portfolio of securities worth $210 million. Suppose the fund...

Consider a mutual fund that manages a portfolio of securities worth $210 million. Suppose the fund owes $5 million to its investment advisers and another $4 million for rent, wages due, and miscellaneous expenses. The fund has 5 million shares outstanding. Net asset value?

A REIT is a mutual-fund type investment that focuses on a. insurance companies. b. growth stocks....

A REIT is a mutual-fund type investment that focuses on a. insurance companies. b. growth stocks. c. stocks in particular industries. d. real estate. e. income stocks. In the context of a mutual fund, "load" refers to a. expected average annual dividend or coupon interest payout. b. expected annual capital gain or loss. c. expected average annual rate of return. d. transaction fees or commissions. e. minimum investment. An income type of mutual fund typically consists of a basket of...

You are considering an investment in a mutual fund with a 4% front-end load. The fund...

You are considering an investment in a mutual fund with a 4% front-end load. The fund charges a back-end load of 5, 4, 3, 2, and 1 percent if the shares are redeemed within the first 5 years, respectively. The expense ratio of 0.5%. Alternatively, you can invest instead in a bank saving account paying 6% interest per year. 1. If you plan to invest for 3 years, what annual rate of return must the fund portfolio earn for you...

You are considering an investment in a mutual fund with a 4% front-end load. The fund...

You are considering an investment in a mutual fund with a 4% front-end load. The fund charges a back-end load of 5, 4, 3, 2, and 1 percent if the shares are redeemed within the first 5 years, respectively. The expense ratio of 0.5%. Alternatively, you can invest instead in a bank saving account paying 6% interest per year. a. If you plan to invest for 3 years, what annual rate of return must the fund portfolio earn for you...

You are considering an investment in a mutual fund with a 4% front-end load. The fund...

You are considering an investment in a mutual fund with a 4% front-end load. The fund charges a back-end load of 5, 4, 3, 2, and 1 percent if the shares are redeemed within the first 5 years, respectively. The expense ratio of 0.5%. Alternatively, you can invest instead in a bank saving account paying 6% interest per year. a. If you plan to invest for 3 years, what annual rate of return must the fund portfolio earn for you...

You are considering an investment in a mutual fund with a 3% load and an expense...

You are considering an investment in a mutual fund with a 3% load and an expense ratio of 0.6%. You can invest instead in a bank CD paying 5% interest. a. If you plan to invest for two years, what annual rate of return must the fund portfolio earn for you to be better off in the fund than in the CD? Assume annual compounding of returns. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Annual...

You are considering an investment in a mutual fund with a 5% load and an expense...

You are considering an investment in a mutual fund with a 5% load and an expense ratio of 1%. You can invest in a bank CD paying 5% interest. a. If you plan to invest for 6 years , what annual rate of return must the fund portfolio earn for you to be better off in the fund than in the CD? Does load fee reduce your effective investment amount? Why? b. If you plan to invest for two years...

You are considering an investment in a mutual fund with a 5% load and an expense...

You are considering an investment in a mutual fund with a 5% load and an expense ratio of 1.25%. You can invest instead in a bank CD paying 7% interest. a. If you plan to invest for two years, what annual rate of return must the fund portfolio earn for you to be better off in the fund than in the CD? Assume annual compounding of returns. (Do not round intermediate calculations. Round your answer to 2 decimal places.) b....

Subjects