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HW_7_Solutions_Chapter_21[1] - Chapter 21 The Mutual Fund...

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Chapter 21 The Mutual Fund Industry square6 Answers to End-of-Chapter Questions 1. Liquidity intermediation, denomination intermediation, ease of diversification, cost advantages, and the growth of defined contribution pension plans. 4. An open end mutual fund is continuously issuing new shares as new funds are received. A closed end fund only issues shares once. 6. Index funds are not actively managed. They simply hold the stocks in the index. They usually have significantly lower fees than actively managed funds. 8. A deferred load is a fee charged when money is withdrawn from a fund. They are usually 5% and fall by 1% for each year the investment is left in the account. 9. Hedge funds typically require very large investments, do not allow withdrawals, and charge very high fees.
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square6 Quantitative Problems 2. A mutual fund charges a 5% upfront load plus reports an expense ratio of 1.34%. If an investor plans on holding a fund for 30 years, what is the average annual fee, as a percent, paid by the investor?
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