Suppose You Consider Investing $1,000 in a Load Fund Which

question 89

Multiple Choice

Suppose you consider investing $1,000 in a load fund which charges a fee of 2%,and you expect the fund to earn 11% over the next year.Alternatively,you could invest in a no-load fund with similar risk that is expected to earn 7% and charges a 1/2 percent redemption fee.Which is better and by how much?

• A) Funds are equal
• B) No-load fund by $36.98
• C) Load fund by $45.25
• D) Load fund by $23.15
• E) No-load fund by $15.52

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Definitions:

Avoidable Costs

Expenses that can be eliminated if a particular decision is made or if an activity is ceased.

Sunk Costs

Costs that have already been incurred and cannot be recovered, and should not affect future business decisions.

Irrelevant Costs

Costs that will not be affected by a decision and should not be considered when making that decision.

Periodic Basis

A method of accounting where financial and inventory records are updated at regular, fixed intervals.