You Are Considering Investing $1,000 in a Load Fund That

question 22

Multiple Choice

You are considering investing $1,000 in a load fund that charges a fee of 2.5 percent, with an expected return of 12 percent over the next year. Alternatively, you could invest in a no-load fund with similar risk that is expected to earn 8 percent and charges a 1/2 percent redemption fee. Which is better and by how much?

• A) load fund by $12.00
• B) load fund by $15.32
• C) load fund by $17.40
• D) no-load fund by $6.55
• E) no-load fund by $1.30

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Definitions:

Generalization

The process of forming general concepts from specific instances by abstracting common properties.

Expected Growth Rate

The anticipated rate at which an investment, company, or economy will grow in a specific period.

Required Return

The minimum expected return by investors for investing in a particular security or project, considering the risk involved.

Dividend

A share of profits paid by a company to its shareholders, typically on a regular basis.