Problem Set 5
Ec 136, Fall 2009
This problem set is due Thursday October 29, in class. Sorry, no late problem
sets are accepted! All students must submit problem sets individually. Please
write your name, section time and GSI on the front page of your solution.
1. Mutual fund expenses
This exercise asks you to compare the fees of two funds investing in the S&P 500, the
Morgan Stanley S&P 500 Index A (SPIAX), and Vanguard 500 Index (VFINX). Go to
www.google.com/°nance and type SPIAX to get the information page about the Morgan
Stanley fund. Scroll down to see "Key statistics" on the right. How much is the front
load? The deferred load? The (annual) expense ratio? What are the corresponding fees
for VFINX?
Suppose you plan to invest $10,000 for 3 years, and the annual return on the stocks held
in the fund portfolio will be 7% per year for both funds. How much money do you end
up with at the end of the three years (after paying the fund fees) if you invest in SPIAX?
What if you invest in VFINX? What is the annual return (after taking out expenses)
you will have earned if you invest in either of these funds?
2. E¢ cient markets
Are the following statements true or false? Explain your answer in no more than two
sentences.
(a) Good News, Inc., just announced an increase in its annual earnings, yet its stock
price fell. This may be consistent with the e¢ cient markets hypothesis.
(b) If the stock market is e¢ cient in the semistrong sense, there should be, on average,
no increase in a company±s stock price before the company announces good news about
its business.
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 Fall '08
 SZEIDL
 VFINX, drug patent value, …ve portfolios

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