You Are Starting Your First Job After College and Are

question 69

Essay

You are starting your first job after college and are looking for a mutual fund in which to invest some of your retirement savings. Your college economics course taught that it is virtually impossible to beat the market in the long run given the efficient markets hypothesis, so you are looking at funds that try to mimic the market and produce the same 7% annual return as the market has produced since 1802. You have narrowed it down to three mutual funds (A, B, and
C), all of which have consistently produced an average annual rate of return of 7%. Fund A charges a 1.5% annual fee, fund B charges 0.2% annually, and fund C is a no-fee fund. Compare how much your investment will be worth after 10 years if you initially invest $10,000 in fund A versus fund B versus fund C. How much will you end up paying in fees for each fund over the course of 10 years if your initial investment is $10,000?

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Definitions:

Equal Chance

A condition in probability where every outcome in a sample space is equally likely to occur.

Observations

The act of monitoring or recording data during an experiment or study.

Stratified Random Sampling

A sampling technique where the population is divided into distinct subgroups and samples are drawn from each subgroup.

Simple Random Sample

A sample in which each member of the population has an equal chance of being selected, minimizing biases in the sampling process.