You are considering investing in a no load mutual fund with an annual expense ratio of 0.6% and an annual 12b-1 fee of 0.75%.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?

Question

Quizplus · Accepted Answer

To be better off in the mutual fund, it must earn enough to cover its expenses and still match the CD's return. The total cost of the mutual fund is 0.6% + 0.75% = 1.35%. Therefore, the fund must earn at least 6.5% + 1.35% = 7.85% to be better than the CD.

You Are Considering Investing in a No Load Mutual Fund