You are considering an investment in a mutual fund with a 4% load and expense ratio of 0.5%. You can invest instead in a bank CD paying 6% interest.
a. If you plan to invest for 2 years, what annual rate of return must the fund portfolio earn for you to be better off in the fund than in the CD?

r>8.68695%

Annual rate of return is r>8.68695%

Explanation:

The net return, the buyer will get= 1+r-0.005

Where:

r is the interest rate

0.005 is expense ratio (0.5%)

Let suppose $1 is invested, then the return after two years is as below:

Considering the annual compounding of returns, the compound interest on $1 for 2 years will be

The fund portfolio earn for you to be better off is:

>

Solving the above equation, we will get:

r>0.0868695                     r>-2.0768 (Ignore this value as it is -ve

r>8.68695%

Annual rate of return is r>8.68695%

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answerjointly by the fed and by the behavior of individuals who hold money and of banks in which money is held;