Reference no: EM132525315

1.You invested $2000 in a mutual fund with a front-end load of 5.75% at the beginning of 2005. If the securities in which the fund invested increased in value by 11% and 5%, respectively for 2005 and 2006. The fund's expense ratio was constant at 1.25%. What is your total return if you sold your shares of the fund at the end of 2006?

ABC company's stock is currently selling at $100 per share. You have $12,000 in your pocket but want to buy 200 shares. You can borrow the remainder of the purchase price from your broker at an annual rate of 5% on the margin loan.

-a) What happens to your net worth (i.e. return) in your brokerage account if the price of ABC company increases to $110 after one year?

-b) If the maintenance margin is 30%, how low can ABC's price drop in one year before you get a margin call?

-c) Explain why you may want to buy on margin. Is there any disadvantage of this strategy?