Question

Fees in 1st year Suppose Adrian and Clemens each Invest $10,000. Adrian Invests in an actively managed mutual fund that has an annual expense ratio (a fee charged by the investment manager of 1.3% Clemens Invests in a passively managed index fund linked to the S&P 500 that has an expense ratio of 0.2%. Both Investments earn a 7% rate of return
1. How much does each investor make on his investment with the 7% rate of return?
2. How much does Adrian pay in fees for his actively managed mutual fund? .
3. How much does Clemens pay in fees for the index fund?
4. At the end of the year, what's the total value (AFTER FEES) of Adrian's mutual fund?
5. What's the total value (AFTER FEES) of Clemens's index fund?
6. How much more value does Clemens's investment generate than Adrian's in one year's time?

Answer 1

Answer:

Task 1:

The answer is $700.

Task 2:

The answer is $130.

Task 3:

The answer is $20.

Task 4:

The answer is $10,570.

Task 5:

The answer is $110.

Explanation:

Task 1:

How much does each investor make on his investment with the 7% rate of return?

Solution:

Adrian & Clemens makes [$10,000*0.07] on their investment = $700.

Task 2:

How much does Adrian pay in fees for his actively managed mutual fund?

Solution:

Adrian owes to his broker = (10000*.013) = $130

Task 3:

How much does Clemens pay in fees for the index fund?

Solution:

Clemens owes to his broker= ($10000*.002) = $20

Task 4:

At the end of the year, what's the total value (AFTER FEES) of Adrian's mutual fund?

Solution:

Value of Adrian's stock = $10000+$570 (net of brokerage) = $10,570

Task 5:

What's the total value (AFTER FEES) of Clemens's index fund?

Solution:

Value of clemens' stock = $10000+$680 (net of brokerage) = $10,680

Task 6:

How much more value does Clemens' investment generate than Adrian's in one year's time?

Solution:

Clemens investment makes ($680-$570) than adrian's investment = $110