1,000 shares of the New Fund at a price of $20 per share at the begin- ning of the year. You paid a front-end load of 4%. The securities in which the fund invests increase in value by 12% during the year. The funds expense ratio is 1.2%. What is your rate of return on the fund if you sell your shares at the end of the year? 17. The Investments Fund sells Class A shares with a front-end load of 6% and Class B shares with 12b-1 fees of .5% annually as well as back-end load fees that start at 5% and fall by 1% for each full year the investor holds the portfolio (until the fifth year). Assume the portfolio rate of return net of operating expenses is 10% annually. If you plan to sell the fund after four years, are Class A or Class B shares the better choice for you? What if you plan to sell after 15 years? 18. Suppose you observe the investment performance of 350 portfolio managers for five years, and rank them by investment returns during each year. After five years, you find that 11 of the funds have investment returns that place the fund in the top half of the sample in each and every year of your sample. Such consistency of performance indi- cates to you that these must be the funds whose managers are in fact skilled, and you invest your money in these funds. Is your conclusion warranted? 19. You are considering an investment in a mutual fund with a 4% load and expense ratio of .5%. You can invest instead in a bank CD paying 6% interest. a. If you plan to invest for two years, what annual rate of return must the fund portfo- lio earn for you to be better off in the fund than in the CD? Assume annual com- pounding of returns. b. How does your answer change if you plan to invest for six years? Why does your answer change? c. Now suppose that instead of a front-end load the fund assesses a 12b-1 fee of .75% per year. What annual rate of return must the fund portfolio earn for you to be better off in the fund than in the CD? Does your answer in this case depend on your time horizon? 20. Suppose that every time a fund manager trades stock, transaction costs such as com- missions and bid-asked spreads amount to .4% of the value of the trade. If the portfo- lio turnover rate is 50%, by how much is the total return of the portfolio reduced by trading costs? 21. You expect a tax-free municipal bond portfolio to provide a rate of return of 4%. Man- agement fees of the fund are .6%. What fraction of portfolio income is given up to fees? If the management fees for an equity fund also are .6%, but you expect a portfo- lio return of 12%, what fraction of portfolio income is given up to fees? Why might management fees be a bigger factor in your investment decision for bond funds than for stock funds? Can your conclusion help explain why unmanaged unit investment trusts tend to focus on the fixed-income market?