You Are Considering Investing in a No-Load Mutual Fund with an Annual

question 38

Multiple Choice

You are considering investing in a no-load mutual fund with an annual expense ratio of .6% and an annual 12b-1 fee of .75%. You could also invest in a bank CD paying 6.5% per year. What minimum annual rate of return must the fund earn to make you better off in the fund than in the CD?

• A) 7.1%
• B) 7.45%
• C) 7.25%
• D) 7.85%

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Definitions:

Depreciation

An expense recorded to reduce the book value of an asset due to its usage and wear and tear over time, reflecting its decreasing value.

Accounts Receivable

Money that clients are required to pay to a company for goods or services received but for which payment has not yet been made.

Operating Section

A component of the income statement where the primary revenues and expenses of a company's core business activities are detailed.

Interest Expense

The cost incurred by an entity for borrowed funds over a particular period of time, typically expressed as a rate of the principal.