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

question 9

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 14% over the next year. Alternatively, you could invest in a no-load fund with similar risk that is expected to earn 9% and charges a 1/2% redemption fee. Which is better and by how much?

• A) Funds are equal
• B) Load fund by $32.65
• C) Load fund by $50.55
• D) No-load fund by $64.55
• E) No-load fund by $44.30

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Definitions:

Income Tax Expense

The amount of money that a company or individual owes to the government based on their taxable income.

Deferred Tax Liability

A financial obligation recorded on a company's balance sheet that results from a difference in the timing of when income is earned and when it is taxable.

Installment Sales

Revenue recognition method allowing income to be realized at the time of sale but received through regular payments over time.