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You are considering an investment in a no-load mutual fund; the fund

charges a 12b-1 fee of 0.5% per year as well as an operating expense ratio of 1% per year. Alternatively, you can invest instead in a bank saving account paying 7% interest. If you plan to invest for five years, and the mutual fund promise that the fund portfolio will earn 8% per year in the first three years, then what annual rate of return must the fund portfolio earn in year 4 and year 5 for you to be better off in the fund than in the bank saving account? Assume annual compounding of returns.

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Subject: Business, Finance

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