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mariarad [96]
2 years ago
5

Loaded-Up Fund charges a 12b-1 fee of 1% and maintains an expense ratio of .75%. Economy Fund charges a front-end load of 2%, bu

t has no 12b-1 fee and an expense ratio of .25%. Assume the rate of return on both funds’ portfolios (before any fees) is 6% per year. How much will an investment in each fund grow to after?
a. 1 year?
b. 3 years?
c. 10 years?
Business
1 answer:
Rom4ik [11]2 years ago
7 0

Answer:

a. The amount in Loaded-UP Fund will grow to $104.25 after 1 year, while the amount in the Economy Fund will grow to $103.64 after 1 year.

b. The amount in Loaded-UP Fund will grow to $113.30 after 3 years, while the amount in the Economy Fund will grow to $115.90 after 3 years.

c. The amount in Loaded-UP Fund will grow to $151.62 after 10 years, while the amount in the Economy Fund will grow to $171.41 after 10 years.

Explanation:

The following are the relevant formulae to use:

Amount available in Loaded-UP Fund after a certain year = Investment * (1 + Rate of return – 12b-1 fee – Expense ratio)^Number of years ……………….. (1)

Amount available in Economy Fund after a certain year = Investment * (1 – Front-end load) * (1 + Rate of return – Expense ratio)^Number of years ……………….. (2)

Assuming investment is equal to $100 and using equations (1) and (2), we have:

a. 1 year?

Amount available in Loaded-UP Fund after 3 years = $100 * (1 + 6% - 1% - 0.75%)^1 = $104.25

Amount available in Economy Fund after 3 years = $100 * (1 - 2%) * (1 + 6% - 0.25%)^1 = $103.64

Therefore, the amount in Loaded-UP Fund will grow to $104.25 after 1 year, while the amount in the Economy Fund will grow to $103.64 after 1 year.

b. 3 years?

Amount available in Loaded-UP Fund after 3 years = $100 * (1 + 6% - 1% - 0.75%)^3 = $113.30

Amount available in Economy Fund after 3 years = $100 * (1 - 2%) * (1 + 6% - 0.25%)^3 = $115.90

Therefore, the amount in Loaded-UP Fund will grow to $113.30 after 3 years, while the amount in the Economy Fund will grow to $115.90 after 3 years.

c. 10 years?

Amount available in Loaded-UP Fund after 3 years = $100 * (1 + 6% - 1% - 0.75%)^10 = $151.62

Amount available in Economy Fund after 3 years = $100 * (1 - 2%) * (1 + 6% - 0.25%)^10 = $171.41

Therefore, the amount in Loaded-UP Fund will grow to $151.62 after 10 years, while the amount in the Economy Fund will grow to $171.41 after 10 years.

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Adams Corporation's present capital structure, which is also its target capital structure is
kaheart [24]

Answer:

Task a:

The answer is $24,500.

Task b:

The answer is 17%

Explanation:

<h2>Task a:</h2><h3>What is the maximum amount of new capital that can be raised at the LOWEST  component cost of EQUITY?</h3><h3>Solution:</h3>

We already know the following:

Projected net income = $21,000

Payout ratio = 30%

Retention ratio = 70%

Debt share = 40%

Equity share = 60%

Maximum amount of capital to be raised at the lowest component cost of equity = Projected net income ×\frac{Retention ratio}{Equity share}

= $21,000 × \frac{0.70}{0.60}

= $24,500

<h3>Answer:</h3>

The maximum amount of new capital that can be raised at the lowest component of equity is $24,500.

<h2>Task b:</h2><h3>What is the component cost of equity by selling new common stock?</h3><h3>Solution:</h3>

k(e) (component cost of external equity) = [Dividend (D0)(1 + growth) / stock price(1 - flotation cost)] + growth

Formula:

k(e) = \frac{Do(1+g)}{P(1-0.20)} + 0.05

Where

Do = $2.00

G = 0.05

P = $21/88

= ($2.00(1 + 0.05) / $21.88(1-.20)) + 0.05

= ($2.10/$21.88(1-.20)) + 0.05

= ($2.10/$21.88(0.80) + 0.05

= 0.17 or 17%

<h3>Answer: </h3>

The component cost of equity by selling new common stock = 17%

5 0
3 years ago
Effective teamwork and high productivity are good indications of positive....
Aleks [24]
Effective teamwork and high productivity are good indications of positive Productivity goals. 


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3 years ago
A mining company owns two mines, each of which produces three grades (high, medium, and low) of ore. The company has a contract
sashaice [31]

Answer:

They should operate Mine 1 for 1 hour and Mine 2 for 3 hours to meet the contractual obligations and minimize cost.

Explanation:

The formulation of the linear programming is:

Objective function:

C=200M_1+160M_2

Restrictions:

- High-grade ore: 6M_1+2M_2\geq12

- Medium-grade ore: 2M_1+2M_2\geq8

- Low-grade ore: 4M_1+12M_2\geq24

- No negative hours: M_1,M_2\geq0

We start graphing the restrictions in a M1-M2 plane.

In the figure attached, we have the feasible region, where all the restrictions are validated, and the four points of intersection of 2 restrictions.

In one of this four points lies the minimum cost.

Graphically, we can graph the cost function over this feasible region, with different cost levels. When the line cost intersects one of the four points with the lowest level of cost, this is the optimum combination.

(NOTE: it is best to start with a low guessing of the cost and going up until it reaches one point in the feasible region).

The solution is for the point (M1=1, M2=3), with a cost of C=$680.

The cost function graph is attached.

7 0
3 years ago
A stock has an expected return of 11.85 percent, its beta is 1.24, and the expected return on the market is 10.2 percent. What m
prisoha [69]

Answer:

The risk free rate is 3.325%

Explanation:

The required rate of return or cost of equity of a stock can be calculated using the CAPM. The CAPM estimates the required rate of return of a stock based on three factors- risk free rate, stock's beta and the market risk premium. The equation of required rate of return under CAPM is,

r = rRF + Beta * (rM - rRF)

Where,

  • rRF is the risk free rate
  • rM is the return on market
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We already have the values for r, Beta and rM. Plugging in these values in the formula, we calculate the rRF to be,

Let rRF be x.

0.1185 = x + 1.24 * (0.102 - x)

0.1185 = x + 0.12648 - 1.24x

1.24x - x  =  0.12648 - 0.1185

0.24x = 0.00798

x = 0.00798/0.24

x = 0.03325 or 3.325%

3 0
3 years ago
Charles, the president of an IT company, is friends with Levi, the CEO of Cyber Industries, a company that develops and manufact
Akimi4 [234]

Answer: Option A

 

Explanation: In simple words, Ponzi scheme refers to a scheme in which a company deceit their earlier investor by paying them from the funds of recent investors in the form of profits.

In the given case, Levi deceited Charles by making him believe of a strategy that may or may not exist in his organisation. Thus, he will pay charles from the money that he will gain from the market after the announcement of the new processor.

Hence from the above we can conclude that the correct option is A.

7 0
3 years ago
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