1. Using the data below, calculate the rates of return for each fund for 2006 and 2007....
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2. Show how much their $3,000 investment would be worth as of December 31, 2007, assuming it was invested in one or the other fund. Assume that distributions during the year were used to acquire additional shares at the average NAV for the year.
3. Assuming that each fund is no-load and that the two funds are similar in other important respects, which do you recommend for the Byrons? Explain the reason(s) for your choice. Be sure to comment on the issue of distributions from the funds.
4. Explain whether you think it might be a good idea for the Byrons to divide their investments between the two funds.
Lorrie and Dave Byron are saving for their childrens education. They estimate they will need about $10,000 a year for a six-year period beginning nine years from now. The Byrons have sufficient liquidity and will not need these investment funds until then. They have decided that mutual funds represent the best investment vehicle for them, and they are currently trying to select one for their first investment of $3,000.
Lorrie is impressed with the Sun Income Fund, which invests mainly in fixed-income securities. Lorrie notes that it has a good history of making distributions and that its rate of return last year (2007) was 17 percent. Dave disagrees with Lorries selection; instead, he favors the Ambrux Capital Appreciation Fund. It invests heavily in the common stock of growth companies, and it distributes very little each year, preferring rather to reinvest capital gains. He argues that since they will not need distributions, it doesnt make sense to invest in a fund that features them. He also notes that Ambruxs rate of return last year was 33.4 percent, a much better performance than Suns. Lorrie agrees that growth might be a better investment goal than high current income, but she thinks it doesnt matter how much a fund distributes, since they will elect to have all distributions reinvested in the fund anyway. Her preference for the Sun Fund rests mostly with her feeling that it is less riskyand she thinks the beta values for each support this view.
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Mutual Funds
Mutual funds are like a pool of funds gathered by different small investors that have simalar investment perspective about returns on their investments. These funds are managed by professional investment managers who act smartly on behalf of the...
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Personal Finance An Integrated Planning Approach
ISBN: 978-0136063032
8th edition
Authors: Ralph R Frasca