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6 May, 06:28

You are considering investing in a no-load mutual fund with an annual expense ratio of. 6% and an annual 12b-1 fee of. 75%. You could also invest in a bank CD paying 6.5% per year. What minimum annual rate of return must the fund earn to make you better off in the fund than in the CD

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  1. 6 May, 06:48
    0
    7.85%

    Explanation:

    12b-1 fees and management fees (annual expense ratio) represent the annual expenses that the mutual fund managers deduct from your gross returns.

    net return = gross return - annual expense ratio - 12b-1

    if you want a net return ≥ 6.5% (given by a CD), then:

    6.5% = gross return - 0.6% - 0.75%

    gross return = 6.5% + 0.6% + 0.75% = 7.85%
  2. 6 May, 06:48
    0
    7.85%

    Explanation:

    Therefore;

    CD paying per year + annual expense ratio + annual 12b-1 fee

    6.5 +.06 +.075 = 7.85%

    The minimum annual rate of return must the fund earn to make you better off in the fund than in the CD is 7. 85%
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