What annual rate of return must the fund portfolio earn

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You are considering an investment in a mutual fund with a 4% front-end load and an expense ratio of 0.5%. You can invest instead in a savings account that promises a 6% APR.

- If you plan to invest for two years, what annual rate of return must the fund earn for you to be better off in the fund that in the savings account? Assume annual compounding of returns.

- Now suppose that, instead of a front-end load, the fund charges a 12b-1 fee of 0.75% per year. What annual rate of return must the fund portfolio earn for you to be better off in the fund than in the savings account? Does your answer in this case depend on the holding period?

Reference no: EM132795991

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