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    HW 4

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    TaySyYin
    This document contains examples of calculations related to mutual fund investments including: 1) Calculating the offering price of a mutual fund that charges a 6% front-end load. 2) Calculating the net asset value (NAV) of a mutual fund portfolio based on the value of its holdings and number of shares outstanding. 3) Calculating the portfolio turnover rate of a mutual fund based on the value of stocks sold and replaced in a year. 4) Determining the minimum rate of return a mutual fund portfolio would need to earn over different time periods (2 and 6 years) to outperform a bank CD, taking into account front-end loads and annual fees.

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    HW 4

    Uploaded by

    TaySyYin
    23 views3 pages
    This document contains examples of calculations related to mutual fund investments including: 1) Calculating the offering price of a mutual fund that charges a 6% front-end load. 2) Calculating the net asset value (NAV) of a mutual fund portfolio based on the value of its holdings and number of shares outstanding. 3) Calculating the portfolio turnover rate of a mutual fund based on the value of stocks sold and replaced in a year. 4) Determining the minimum rate of return a mutual fund portfolio would need to earn over different time periods (2 and 6 years) to outperform a bank CD, taking into account front-end loads and annual fees.

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    This document contains examples of calculations related to mutual fund investments including: 1) Calculating the offering price of a mutual fund that charges a 6% front-end load. 2) Calculating the net asset value (NAV) of a mutual fund portfolio based on the value of its holdings and number of shares outstanding. 3) Calculating the portfolio turnover rate of a mutual fund based on the value of stocks sold and replaced in a year. 4) Determining the minimum rate of return a mutual fund portfolio would need to earn over different time periods (2 and 6 years) to outperform a bank CD, taking into account front-end loads and annual fees.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    23 views3 pages

    HW 4

    Uploaded by

    TaySyYin
    This document contains examples of calculations related to mutual fund investments including: 1) Calculating the offering price of a mutual fund that charges a 6% front-end load. 2) Calculating the net asset value (NAV) of a mutual fund portfolio based on the value of its holdings and number of shares outstanding. 3) Calculating the portfolio turnover rate of a mutual fund based on the value of stocks sold and replaced in a year. 4) Determining the minimum rate of return a mutual fund portfolio would need to earn over different time periods (2 and 6 years) to outperform a bank CD, taking into account front-end loads and annual fees.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    8-12. c.

    This is a filter rule, a classic technical trading rule, which would appear to
    contradict the weak form of the efficient market hypothesis.

    8-13. c. The P/E ratio is public information so this observation would provide
    evidence against the semi-strong form of the efficient market theory.

    CFA8-1 b.
    Public information constitutes semi-string efficiency, while the addition of private
    information leads to strong form efficiency.
    CFA8-2 a.
    The information should be absorbed instantly.
    CFA8-4 c.
    Stocks producing abnormal excess returns will increase in price to eliminate the
    positive alpha.
    CFA8-5 c.
    A random walk reflects no other information and is thus random.
    CFA8-6 d.
    Unexpected results are by definition an anomaly.

    4-11. The offering price includes a 6% front-end load, or sales commission,


    meaning that every dollar paid results in only $0.94 going toward the purchase of
    NAV $ 10 .70
    =
    shares. Therefore: Offering price = 1−load 1−0 . 06 =$11.38
    4-13
    Given that net asset value equals assets minus liabilities expressed on a per-share
    basis, we first add up the value of the shares to get the market value of the portfolio:
    Stock Value Held by
    Fund
    A $ 7,000,000
    B 12,000,000
    C 8,000,000
    D 15,000,000
    Total $42,000,000

    knowing that the accrued management fee, which adjusts the value of the portfolio,
    totals $30,000, and the number of the shares outstanding is 4,000,000, we can use
    the NAV equation:
    Net asset value=Market value of assets － Market value of liabilities =
    S h ares outstanding
    $ 42,000 ,000−$30,000
    4,000 ,000 = $10.49

    4-14 The value of stocks sold and replaced = $15,000,000.

    Turnover rate = The value of stocks sold and replaced = $15,000,000.

    Turnover rate = Value of stocks sold or replaced


    Value of assets
    $15,000,000
    = $ 42,000,000 = 0.3571 = 35.71%

    4-26.
    a. After two years, each dollar invested in a fund with a 4% load and a portfolio
    return equal to r will grow to: $0.96  (1 + r – 0.005)^2
    Each dollar invested in the bank CD will grow to: $1 (1.06)^2
    If the mutual fund is to be the better investment, then the portfolio return, r, must
    satisfy:
    0.96  (1 + r – 0.005)2 > (1.06)2
    0.96  (1 + r – 0.005)2 > 1.1236
    (1 + r – 0.005)2 > 1.1704
    1 + r – 0.005 > 1.0819
    1 + r > 1.0869
    Therefore, r > 0.0869 = 8.69%
    b. If you invest for six years, then the portfolio return must satisfy:
    0.96 (1 + r –0.005)^6 > (1.06)^6 = 1.4185
    (1 + r – 0.005)^6 > 1.4776
    1 + r – 0.005 > 1.0672
    1 + r > 1.0722
    r > 7.22%
    The cutoff rate of return is lower for the six year investment because the "fixed cost"
    (i.e., the one-time front-end load) is spread out over a greater number of years.
    c.
    i. With a 12b-1 fee instead of a front-end load, the portfolio must earn a rate of
    return (r) that satisfies:
    1 + r – 0.005 – 0.0075 > 1.06
    ii. In this case, r must exceed 7.25% regardless of the investment horizon.

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