11_Mutual Funds and Joint PDFs_sol

11_Mutual Funds and Joint PDFs_sol - BM HW#11 Multiple...

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BM HW #11 Multiple Choice 1. An open-end fund has a net asset value of $15.00 per share. It is sold with a front-end load of 4%. What is its offering price per share? A) 14.67 B) 15.63 C) 16.54 D) 17.87 2. All of the following are characteristic of hedge funds except 3. A money-market fund earns 5% per share annually, but also has an expense ratio of 50 basis points. The gross return you would earn on the fund each year is Free Response 1. BKM, chapter 4, #2 (page 111) P=10.70+.06*P P=10.70/(1-.06)=$11.38 2. BKM, chapter 4, #3 (page 112) NAV = offering price × (1 – load) = $12.30 ×0 .95 = $11.69 3. BKM, chapter 4, #19, (page 113). For part ( c ) assume the 12b-1 fee is in addition to the .5% annual expense ratio. Try part (c) at both the 2-year and 6-year investment horizon. a. After two years, gross return on CD is (1.06)^2=1.124 After two years, gross return on fund is .96*(1+r-0.005)^2 .96*(1+r-.005)^2>1.124 r>(1.124/.96)^(1/2)+.005-1=8.7%
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