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TABLE 5.3 Net Returns of Index Funds with Varying Characteristics Ten-Year Assumed Residual Value of Gross Sales Expense Operating Net $10,000 Return Charge Ratio Efficiency* Return Investment** 12% 0% 0% 0% 12% $31,100 12 0 0.20 0 11.8 30,500 Market index No load Low cost Efficient No load Low cost Inefficient No load High cost Inefficient Load High cost Inefficient 12 0 0.20 -0.20 11.6 30,000 12 0 0.80 -0.30 10.9 28.100 12 6 0.80 -0.30 10.2 26,500 *Difference between target index and portfolio return before cost. ** Assumed 10-year holding period. Question 4 (worth 25 points). Interpret the above table. TABLE 5.3 Net Returns of Index Funds with Varying Characteristics Ten-Year Assumed Residual Value of Gross Sales Expense Operating Net $10,000 Return Charge Ratio Efficiency* Return Investment** 12% 0% 0% 0% 12% $31,100 12 0 0.20 0 11.8 30,500 Market index No load Low cost Efficient No load Low cost Inefficient No load High cost Inefficient Load High cost Inefficient 12 0 0.20 -0.20 11.6 30,000 12 0 0.80 -0.30 10.9 28.100 12 6 0.80 -0.30 10.2 26,500 *Difference between target index and portfolio return before cost. ** Assumed 10-year holding period. Question 4 (worth 25 points). Interpret the above table
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