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An investor is considering a no-load mutual fund with an annual expense ratio of 0.4% and an annual 12b-1 fee of 0.55%. Another option is to invest a bank CD paying 5.5% per year. What minimum annual rate of return must the fund earn to make the investor better off in the fund than in the CD?

Respuesta :

abiolataiwo2015

Answer:

6.45%

Explanation:

Calculation for the minimum annual rate of return that the fund must earn to make the investor better off in the fund than in the CD

Using this formula

Minimum annual rate=Bank CD+Annual expense ratio+Annual 12b-1 fee

Let plug in the formula

Minimum annual rate=5.5% per year + 0.4%+0.55

Minimum annual rate=6.45%

Therefore the minimum annual rate of return that the fund must earn to make the investor better off in the fund than in the CD Will be 6.45%

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