1.For each pair of funds listed below, identify which fund is likely to have a relatively higher level of risk. Briefly explain your answer.
a.Growth versus growth-and-income funds
b.Equity-income versus high-grade corporate bond funds
c.Convertible securities fund versus value funds
2.Suppose you plan to invest $10,000 in a load fund, which charges front-end load of 8%, and you expect your investment to earn 15% over the next year. Alternatively, you could invest in a no-load fund with similar risk, which charges a 1% redemption fee. You estimate that this no-load fund will earn 12% over the same period. Given your expectations, which of the fund is better for you, and what would be dollar difference between the values of your investment in the two funds?
3.Suppose Pride Social Fund had no liabilities and owned merely six stocks as follows for the reporting period presented below;
|
Stock
|
Shares
|
Initial
|
Ending
|
|
|
Price/Share
|
Price/Share
|
|
|
|
|
|
BAC
|
7,414
|
16.11
|
13.34
|
|
|
|
|
|
PNC
|
3,826
|
51.43
|
60.62
|
|
|
|
|
|
BA
|
3,768
|
50.42
|
64.88
|
|
|
|
|
|
LMT
|
2,456
|
28.45
|
69.91
|
|
|
|
|
|
CAT
|
8,657
|
17.94
|
93.22
|
|
|
|
|
|
GE
|
1,856
|
32.15
|
18.29
|
|
|
|
|
The fund also has one hundred thousand shares outstanding at end of the reporting period.
a.Calculate the holding period return on each stock at end.
b.Calculate the fund's beginning and ending NAV.
c.Calculate the holding period return on the fund
d.Which stock(s) underperformed compared to the return on the fund over the holding period?
e.Suggest a quick strategy to the fund manager to boost the fund's performance.
4.A year ago, the quoted NAV for Acuity Capital fund was NAV of $31.50 and an offer price of $34.56. Today, the quoted NAV and offering price for the fund are $33.04 (NAV) and $36.04 (offer).
a.What is the holding period return on this load fund, given that it was purchased a year ago and that its dividends and capital gains distributions over the year have totaled $2.20 per share?
b.What is the load-adjusted holding period return on the fund for the same period?
5.WU2040 fund is a life-cycle fund, which offers multiple classes of shares. Class A shares has 5% front-end load, Class B is a no-load class for institutional clients. Suppose that at the start of the year, the fund's NAV is $27.15 per share. During the year, it pays its shareholders a capital gain and dividend distribution of $1.12 per share and finishes the year with a NAV of $30.34.
a.What is the return to an investor who holds 857.87 shares of this fund in his (non-taxable) retirement account?
b.What is the after-tax return for the same investor if these shares were held in an ordinary brokerage account? Assume that the investor is in the 30 percent tax bracket.
c.If the investment company allowed the investors to automatically reinvest his cash distribution additional fund shares, how many additional shares could the investors in parts a and b acquire? Assume that the distributions occurred at year end and that the proceeds from the distribution can be reinvested at the year-end NAV.
6.Two year ago, John Bredola purchased 2,000 shares of Jain Emerging Market Fund at NAV of $24.0; back-end load begins at 5% and declines by 1% each year to 0%. The current NAV of the fund is $30.56. John would like to redeem 1,000 units of his shares;
a.How much in dollars is John expected to pay in back-end load fees?
b.What is the net amount, which John expects to receive from this redemption?
c.What is (are) the possible tax implication(s) of John's decision.