when an estimated model begins to describe the quirks of the data rather than the real relationships between variables, this is
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Answer:
The complete question is found in the attachment
Explanation:
End Value of Investment = Investment * (1 - Front-end load) * (1 + r - True Expense Ratio)T
Loaded-up fund:
True Expense Ratio = Expense Ratio + 12b-1 fee = 0.5% + 1% = 1.5%
a). 1-year:
End Value of Investment = $1,000 * (1 - 0) * (1 + 0.06 - 0.015)1 = $1,000 * 1 * 1.045 = $1,045.00
b). 3-years:
End Value of Investment = $1,000 * (1 - 0) * (1 + 0.06 - 0.015)3 = $1,000 * 1 * 1.1412 = $1,141.17
c). 10-years:
End Value of Investment = $1,000 * (1 - 0) * (1 + 0.06 - 0.015)10 = $1,000 * 1 * 1.5530 = $1,552.97
Expense Fund:
a). 1-year:
End Value of Investment = $1,000 * (1 - 0.03) * (1 + 0.06 - 0.0025)1
= $1,000 * 0.97 * 1.0575 = $1,025.78
b). 3-years:
End Value of Investment = $1,000 * (1 - 0.03) * (1 + 0.06 - 0.0025)3
= $1,000 * 0.97 * 1.1826 = $1,147.13
c). 10-years:
End Value of Investment = $1,000 * (1 - 0.03) * (1 + 0.06 - 0.0025)10
= $1,000 * 0.97 * 1.7491 = $1,696.58
