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ASA_Woman
05-19-2002, 12:44 PM
Seems like a simple question but I&amp;#8217;m not understanding the solution:

May 2000, #19

On January 1, you buy 1000 shares of a mutual fund at a price of 1.25 per share.
The share prices at various times of the year are as follows:

Time, Share price
3 months later, 1.50
6 months later, 1.75
9 months later, 1.60
12 months later, 1.90

During the year, you will make one deposit of 1200 and one withdrawal of 800.

Which of the following situations would give the minimum fund balance at the end of the year?

(A) Withdrawal at 3 months, deposit at 6 months
(B) Withdrawal at 3 months, deposit at 9 months
(C) Withdrawal at 6 months, deposit at 9 months
(D) Withdrawal at 9 months, deposit at 3 months
(E) Withdrawal at 9 months, deposit at 6 months

The first thing a student must realize is when is the worst time to make your deposit and withdrawal in general:
(i) deposit &amp;#8211; just before unit value falls =&gt; (this eliminates answers B,C,D) 6 months.
(ii) Withdrawal &amp;#8211; just before unit value rises &amp;#8211; either 3 months or 9 months
Thus, student must choose between A and E. Doing the calculations:
Withdrawal at 3 months:
Fund at time 0 = \$1250 (1000 x 1.25)
Withdrawal at time 3 = 800/1.5 = 533.33 units =&gt; fund = 466.67 units x 1.5 = 700
Deposit at 6 = 1200/1.75 = 685.71 units =&gt; fund = 1152.38 x 1.75 = 2016.67
Fund at 12 = 1152.38 x 1.90 = 2189.52 &lt;= lower so answer is A.

MY QUESTION:Lower than what?? Did they just skip over the calculations for E or should I be comparing 2189.52 with something else??

CaptainCavy
05-19-2002, 01:56 PM
Looks like they just left off the calculations for E. :oops: