Friday, 26 September 2014

Suppose that every time a fund manager trades stock, transaction costs such as commissions and bid–ask spreads amount to 2.7% of the value of the trade. If the portfolio turnover rate is 50%, by how much is the total return of the portfolio reduced by trading costs? (Round your answer to 1 decimal place.)

Suppose that every time a fund manager trades stock, transaction costs such as commissions and bid–ask spreads amount to 2.7% of the value of the trade. If the portfolio turnover rate is 50%, by how much is the total return of the portfolio reduced by trading costs? (Round your answer to 1 decimal place.)

  Fall in returns %  


Explanation:
The turnover rate is 50%. This means that, on average, 50% of the portfolio is sold and replaced with other securities each year. Trading costs on the sell orders are 2.7%; the buy orders to replace those securities entail another 2.7% in trading costs. Total trading costs will reduce portfolio returns by: 2 × 0.027 × 0.5 = 0.027 or 2.7%

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.

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.

a. If you plan to sell the fund after four years, are Class A or Class B shares the better choice for you?
   
  Class B

b. What if you plan to sell after 15 years?
   
  Class A


Explanation:

Consider a mutual fund with $203 million in assets at the start of the year and with 10 million shares outstanding. The fund invests in a portfolio of stocks that provides dividend income at the end of the year of $5 million. The stocks included in the fund's portfolio increase in price by 7%, but no securities are sold, and there are no capital gains distributions. The fund charges 12b-1 fees of 0.75%, which are deducted from portfolio assets at year-end.

Consider a mutual fund with $203 million in assets at the start of the year and with 10 million shares outstanding. The fund invests in a portfolio of stocks that provides dividend income at the end of the year of $5 million. The stocks included in the fund's portfolio increase in price by 7%, but no securities are sold, and there are no capital gains distributions. The fund charges 12b-1 fees of 0.75%, which are deducted from portfolio assets at year-end.

a.
What is net asset value at the start and end of the year? (Enter your answers in dollars rounded to 3 decimal places.)
 
  Net Asset Value
  Start of the year $       
  End of the year       

   
b.
What is the rate of return for an investor in the fund? (Use rounded "Net Asset Value". Round your answer to 2 decimal places.)
 
  Rate of return %  


Explanation:

The Closed Fund is a closed-end investment company with a portfolio currently worth $215 million. It has liabilities of $6 million and 4 million shares outstanding.

The Closed Fund is a closed-end investment company with a portfolio currently worth $215 million. It has liabilities of $6 million and 4 million shares outstanding.

a.
What is the NAV of the fund? (Round your answer to 2 decimal places.)

  NAV $   

b.
If the fund sells for $49 per share, what is its premium or discount as a percent of NAV? (Input the amount as a positive value. Round your answer to 2 decimal places.)

  The fund sells at an % Discount from NAV.


Explanation: a.
NAV =
Market value of assets – Market value of liabilities
Shares outstanding

=  
$215,000,000 – $6,000,000
 = $52.25
4,000,000

b.
Premium (or discount) = 
Price – NAV 
 = 
$49 – $52.25
 = –0.0622 = –6.22%
NAV $52.25

The fund sells at an 6.22% discount from NAV.

An open-end fund has a net asset value of $11.40 per share. It is sold with a front-end load of 7%. What is the offering price?

An open-end fund has a net asset value of $11.40 per share. It is sold with a front-end load of 7%. What is the offering price? (Round your answer to 2 decimal places.)

  Offering price $   


Explanation:
The offering price includes a 7% front-end load, or sales commission, meaning that every dollar paid results in only $0.93 going toward the purchase of shares. Therefore:
 
Offering price =
NAV
=
$11.40
 = $12.26
1 − load 1 − 0.07

Escher Company is a wholesale distributor that uses activity-based costing for all of its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity based costing system:

Escher Company is a wholesale distributor that uses activity-based costing for all of its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity based costing system:

  Overhead costs:  
  Wages and salaries $552,000  
  Other expenses
220,000  
  Total
$772,000  

Distribution of resource consumption
 
Activity Cost Pools
  Filling
Orders
Customer
Support
Other Total
  Wages and salaries 40%     55%     5%     100%    
  Other expenses 50%     45%     5%     100%    

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The amount of activity for the year is as follows:

Activity Cost Pool Activity
  Filling orders 5,400    orders
  Customer support 22    customers

What would be the total overhead cost per order according to the activity based costing system? In otherwords, what would be the overall activity rate for the filling orders activity cost pool?
$63.26
correct $61.26
$58.76
$67.76

Capizzi Corporation has an activity-based costing system with three activity cost pools-Machining, Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to three activity cost pools based on resource consumption. Data used in the first stage allocations follow:

Capizzi Corporation has an activity-based costing system with three activity cost pools-Machining, Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to three activity cost pools based on resource consumption. Data used in the first stage allocations follow:

  Overhead costs:  
  Equipment depreciation $81,200  
  Supervisory expense $7,000  

Distribution of Resource Consumption Across Activity Cost Pools:
 
Activity Cost Pools
  Machining Order Filling Other
  Equipment depreciation 0.50      0.20         0.30    
  Supervisory expense 0.50      0.10         0.40    

Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow:

  Activity:    
  MHs (Machining) Batches (Order Filling)
  Product Y7 1,680           860            
  Product V2 9,710           2,240            
  Total
11,390          
3,100            

What is the overhead cost assigned to Product V2 under activity-based costing? (Round your intermediate calculations to 2 decimal places.)
$37,578
correct $49,808
$12,230
$60,340