Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Question
Chapter 10, Problem 4MC
Summary Introduction
To Determine: The Reasons on Investing in the Fund and its Effects.
Introduction: Annualized Percentage Rate (APR) is defined as the total interest rate that is paid in a year which replicates all the costs of a loan for the duration of one year. Effective Annual Rate (EAR) is defined as the interest rate an investor earns in a current year after book-keeping for the results of compounding.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
The returns of the Arias Small-Cap Fund are the most volatile of all the mutual funds in the 401(k) plan. Why would you ever want to invest in this fund?
If you wish to purchase a mutual fund with low annual fees you should collect information on the of the various funds. O a) MER O b) P/E c) EPS O d) beta
Suppose that a mutual fund agent approaches you and promote a fund which allows you to withdraw money from your Employment Provident Fund (EPF) to invest. From the analysis of the agent, the fund expected to pay up to 11% return, and you know that EPF paid an average 6% return and treasury’s return fixed at 2.75%. Based on the discussion in this chapter and in your opinion, are you going to take the investment? Justify your answer
Chapter 10 Solutions
Corporate Finance
Ch. 10 - Investment Selection Given that Madrigal...Ch. 10 - Investment Selection Given that Sears was down by...Ch. 10 - Risk and Return We have seen that over long...Ch. 10 - Prob. 4CQCh. 10 - Effects of Inflation Look at Table 10.1 and Figure...Ch. 10 - Risk Premiums Is it possible for the risk premium...Ch. 10 - Prob. 7CQCh. 10 - Returns Two years ago, the Lake Minerals and Small...Ch. 10 - Prob. 9CQCh. 10 - Historical Returns The historical asset class...
Ch. 10 - Prob. 1QAPCh. 10 - Calculating Yields In Problem 1, what was the...Ch. 10 - Calculating Returns Rework Problems 1 and 2...Ch. 10 - Prob. 4QAPCh. 10 - Prob. 5QAPCh. 10 - Prob. 6QAPCh. 10 - Prob. 7QAPCh. 10 - Prob. 8QAPCh. 10 - Prob. 9QAPCh. 10 - Calculating Real Returns and Risk Premiums In...Ch. 10 - Prob. 11QAPCh. 10 - Prob. 12QAPCh. 10 - Prob. 13QAPCh. 10 - Prob. 14QAPCh. 10 - Calculating Returns You bought a stock three...Ch. 10 - Prob. 16QAPCh. 10 - Prob. 17QAPCh. 10 - Prob. 18QAPCh. 10 - Prob. 19QAPCh. 10 - Prob. 20QAPCh. 10 - Prob. 21QAPCh. 10 - Prob. 22QAPCh. 10 - Prob. 23QAPCh. 10 - Using Return Distributions Suppose the returns on...Ch. 10 - Prob. 25QAPCh. 10 - Prob. 26QAPCh. 10 - Using Probability Distributions Suppose the...Ch. 10 - Prob. 28QAPCh. 10 - Prob. 1MCCh. 10 - Prob. 2MCCh. 10 - Assume you decide you should invest at least part...Ch. 10 - Prob. 4MCCh. 10 - Prob. 5MCCh. 10 - What portfolio allocation would you choose? Why?...
Knowledge Booster
Similar questions
- You are considering investing in one of several mutual funds. All the funds under consideration have various combinations of front-end and back-end loads and/or 12b-1 fees. The longer you plan on remaining in the fund you choose, the more likely you will prefer a fund with a rather than (a)__ everything else equal. a) 12b-1 fee; back-end load b) front-end load; 12b-1 fee c) 12b-1 fee; front-end load d) front-end load; back-end load e) 12b-1 fee; no load chargearrow_forwardWhich one of the following should you most likely recommend for a prospective investor who has an aggressive appetite? a. Actively managed funds b. Index Funds c. Any type of Mutual funds d. Pension Fundarrow_forwardYou are a prospective fund manager to a life insurance company. You propose to manage its assets utilising a liability-driven strategy. Which of the following actions would your strategy involve? A) Aligning the coupon payments and maturities from your proposed portfolio of fixed income securities with the company’s anticipated claim payments. B) Aligning the dividends and capital appreciation of your proposed portfolio of equities with the company’s anticipated claim payments. C) Managing the sector-spread of your proposed portfolio to capitalise on the margins offered by different governments and other institutions’ fixed income securities. D) Managing the sector-spread of your proposed portfolio to benefit from a positive sloping yield curve.arrow_forward
- 3. Consider an individual who has the possibility of investing an amount t in period 1 in a fund that gives an amount s in period 2. (a) If the interest rate r is positive, what would be the smallest s so that it is optimal for the consumer to accept that investment? (b) If t = 100 and s = 115, what is the highest interest rate at which the individual is willing to invest in that fund?arrow_forwardWould you expect a typical open-end fixed-income mutual fund to have higher or lower operating expenses than a fixed-income unit investment trust? Why?arrow_forwardYour friend suggests that a good way to study whether stock prices are in- formationally efficient is to analyze whether mutual fund managers can earn abnormal returns. Should her study examine the performance of fund managers gross of expenses or net of expenses (i.e., the fund return minus expenses)?arrow_forward
- Using Yahoo Finance, find two different mutual funds (such as a growth fund, a growth and income fund, a sector fund, or a bond fund). Compare the funds based on their size, management, risk level, and dividend distributions. Then, determine which of the two funds would be more appropriate.arrow_forwardSelect the term associated with mutual funds, ETFs and real estate that corresponds to each of the given descriptions. (Note: These are not necessarily complete definitions, but there is only one possible answer for each description.) Description This refers to a risk management technique where investors collect their money in a fund and then invest the fund into a diversified set of securities This plan is offered by most open-ended funds and allows intors to automatically receive a certain amount of money periodically This is an investment company that allocates investor funds into both income generating property and mortgage loans This is a specific type of real estate investment trust that owns and operates income-producing real This fund limits its investments to short-term, tax-exempt municipal securities Termarrow_forwardHow does an investor who owns a mutual fund cash out of the fund when he wants his Money? He can sell it throughout the day on the open market. He can redeem it the end of the day with the mutual fund company. He can redeem it throughout the day on the open market He can redeem it with a limit order and sell it anytime.arrow_forward
- What type of individuals usually choose to buy into a mutual fund using a front-end load? Explain why it is not free to purchase a mutual fund even if it does not have a load.arrow_forwardExplain two major reason why an investor would use a managed fund instead of investing the money in shares on his or her own. Explain why/how these are expected to benefit the investor.arrow_forwardAn investor considers two mutual funds. Based on past experience, the first fund has an expected return of 0.08 and a standard deviation of 0.05. The second fund has an expected return of 0.07 and a standard deviation of 0.06. There is no reason to assume that future performance of these funds will differ from past performance. However, the second fund has a guarantee attached that the return in any year will not be negative.RequiredA. Which fund would a rational investor be likely to buy according to single-person decision theory?B. The investor buys the second fund. Use prospect theory to explain why.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Pfin (with Mindtap, 1 Term Printed Access Card) (...FinanceISBN:9780357033609Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage Learning
Pfin (with Mindtap, 1 Term Printed Access Card) (...
Finance
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Cengage Learning