EX 6R Ans - Name Section Th9 Th10 F9 F10 ACE 240 EXERCISE 6...

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Name:__________________________ Section: Th9 Th10 F9 F10 ACE 240 EXERCISE 6. Investment, Retirement, & Estate Planning Type or clearly print answers to the calculation questions, showing your reasoning. Each question is worth one point unless otherwise noted. 1. [3 points] The BES Mutual Fund has a net asset value of $18.50 and front-end load of 4%. Use this information to answer the following questions. Round your answers to 2 decimal places and show your work. a) How many shares would you receive for an investment of $5,000? $5,000*(1-.04)/$18.50 = 259 shares What would be the immediate asset value of these shares? 259*$18.5 = $4,791.5 What is the load charge for this transaction? $5,000*.04 = $200 2. [2 points] The SMB mutual fund offers no-load shares. One year ago, each share was worth $18.50. Today, the NAV is $16.85. During the year, dividends of $0.40/share and capital gain distributions of $0.25/share were reinvested into additional shares. What was the approximate yield for the fund? [.40 +.25 +(16.85-18.50)]/[(16.85+18.50)/2] = -.0566 = -5.66% 3. How does a closed-end mutual fund differ from an open-end fund? A closed-end mutual fund sells a limited number of shares. An Open-end can sell unlimited amounts of shares. 4. [2 points] Briefly explain: a) Dollar cost averaging in investing Dollar cost averaging is an investing technique where an investor spends a fixed amount on an investment in intervals regardless of the value of the investment. b) Advantages of dollar cost averaging. Dollar cost averaging is a simple way to try and reduce risk. When the investment is more expensive the investor gets less shares for the fixed amount. When the investment is less expensive, the investor gets more shares for the fixed amount. 5.
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This note was uploaded on 08/26/2009 for the course ACE 240 taught by Professor Neelakantan during the Spring '09 term at University of Illinois at Urbana–Champaign.

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EX 6R Ans - Name Section Th9 Th10 F9 F10 ACE 240 EXERCISE 6...

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