QUESTION 4 You are going to invest in a stock mutual fund with a 7 percent front

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QUESTION 4

You are going to invest in a stock mutual fund with a 7 percent front-end load and a 1.4 percent expense ratio. You also can invest in a money market mutual fund with a 4 percent return and an expense ratio of 0.3 percent. If you plan to keep your investment for 2 years, what annual percentage return must the stock mutual fund earn to exceed an investment in the money market fund?

QUESTION 5

You invested $10,000 in a mutual fund at the beginning of the year when the NAV was $41.1. At the end of the year the fund paid $0.3 in short-term distributions and $1.22 in long-term distributions. If the NAV of the fund at the end of the year was $43.95, what was your return for the year?

QUESTION 6

A closed-end fund has total assets of $290 million and liabilities of $800,000. Currently, 20 million shares are outstanding. If the shares currently sell for $15.66, what is the percentage premium or discount on the fund? (Note: Enter premium as a positive number and a discount as a negative number.)

Explanation / Answer

Question 4

Let me consider that the investment is of $100.

Now, after two years the investment in money market mutual fund becomes = $100 * (1 + rate of return - expense ratio)2

= $100 * (1 + 4% - 0.3%)2

= $107.54

Now, since the front-end load is 7%, therefore the actual investmeny in case of the stock mutual fund is $93. Now, the net return of the stock mutula fund should equate the above mentioned value. Therefore, the net return should be = [($107.54 / $93)0.5 - 1] * 100%

= 7.53%

Now, the actual return of the stock mutual fund should be = 7.53% + Expense ratio

= 7.53% + 1.4%

= 8.93%

Question 5

Retrun for the year = [($43.95 + $0.3 + $1.22 - $41.1) / $41.1] * 100%

= 10.63%

Question 6

Book value of each share = (Total assets - Total liabilities) / Outstanding no. of shares

= ($290,000,000 - $800,000) / 20,000,000

= $14.46

Therefore, premium = $15.66 - $14.46

= $1.20

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