You are considering an investment in a mutual fund with no load,a 12b-1 fee of...

You are considering an investment in a mutual fund with no load, a 12b-1 fee of 0.35%, an expense ratio of 0.23%. You can invest instead in a bank CD paying 5% interest. If you plan to invest for 9 years, what annual gross 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.

Round your answer to 4 decimal places. For example, if your answer is 3.205%, then please write down 0.0321.

Solutions

Expert Solution

The return earned by the CD has to be more than 5%

let the return earned be X

Therefore.

1 + (X - 0.0035 - 0.0023) = 1.05

X + 0.9942 = 1.05

X = 1.05 - 0.9942

X = 0.0558 OR 5.58%

jeff jeffy answered 1 year ago

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