| Course | MT483 Investments |
|---|---|
| Unit | Unit 5 |
| Paper type | Fund comparison report |
| Length | About 1,150 words, 7 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | BS in Business Administration |
| Updated | October 2026 |
Free sample paper for MT483 Unit 5
Wrong Benchmark, Right Benchmark, Then Fees in Dollars: An MT483 Unit 5 Fund Comparison Report
[Student Name]
Purdue University Global
MT483: Investments
Unit 5 Fund Comparison Report
[Instructor Name]
[Date]
Both funds, their returns and the investor are composite; the bracketed benchmark figure is a placeholder for the index provider's published number; the sources cited are real.
Purpose
Kevin Brooks, a composite 34-year-old participant in his employer's 401(k) plan, is choosing between two funds on the plan's menu for his $85,000 balance and his yearly contribution of $6,800. The menu page shows the active Summit Growth Fund with a ten-year return of 13.9 percent and the Broad Market Index Fund with 12.9 percent, and on that page the active fund looks better. This report separates two questions the menu combines. Did the active fund add value relative to what its style of investing would have earned anyway? And what will the difference in cost amount to over Kevin's remaining working years? Both funds and their figures are composite; the methods are the ones any participant could apply to a real menu.
The Two Funds as the Menu Shows Them
The Summit Growth Fund is an actively managed large-company growth fund. It holds about 60 stocks chosen by its managers, charges an expense ratio of 0.71 percent and reports a trailing ten-year annual return of 13.9 percent. The Broad Market Index Fund tracks the S&P 500, holds all 500 stocks in proportion to their market value, charges 0.02 percent and reports 12.9 percent over the same ten years. Both returns are net of each fund's own expenses.
Over ten years, $10,000 compounding at 13.9 percent becomes $36,748, and at 12.9 percent it becomes $33,646. A participant reading the menu would see a $3,102 advantage for the active fund and conclude that its managers earned their fee.
Why the S&P 500 Is the Wrong Benchmark
Summit's managers buy firms priced for rapid profit growth, mostly in technology, communication and consumer businesses, and pay high prices relative to what those firms earn today. In some decades those stocks lead the market and in others they lag it. Over the decade in question, growth stocks as a group beat the broad market by a wide margin. A growth fund compared with the S&P 500 is therefore credited partly for its style, which any low-cost growth index fund would have delivered, and only partly for its managers' choices.
A fair benchmark holds style constant, so that what remains is the manager's contribution.
The fund's own prospectus names a large-growth index as its benchmark, and that index returned a bracketed [15.1] percent a year over the same ten years. Against it, the Summit Growth Fund trailed by 1.2 points a year. Ten thousand dollars in the benchmark would have grown to $40,809, about $4,061 more than in the active fund. Measured properly, the active fund did not add value; its style did, and the managers gave some of it back.
Fees in Kevin's Dollars
An expense ratio is a percentage of assets charged every year, which makes it easy to underestimate. On Kevin's current balance, the Summit Growth Fund would charge about $604 in the first year and the index fund about $17. Those amounts rise as the balance grows, and every dollar paid in fees also loses the returns it would have earned.
To isolate the cost, the projection gives both funds the same gross return, an assumed [7.0] percent a year before expenses, and lets only the expense ratio differ. Starting from $85,000 and adding $6,800 at the end of each year, the index fund grows to $888,041 after 25 years and the active fund to $779,274. The gap of $108,767 is the price of the higher fee under equal skill. Summed year by year, the index fund charges about $1,814 over the period and the active fund about $59,179; the rest of the gap is the growth those fees would have earned had they stayed invested.
The projection also defines the hurdle. To match the index fund after costs, the active fund must beat it by about 0.69 points a year before expenses, every year, for 25 years. Its record against a style-matched benchmark, a shortfall of 1.2 points after costs, gives no reason to expect it to clear that hurdle.
What the Evidence on Active Funds Shows
Kevin's case is one instance of a general pattern. Sharpe (1991) set out the arithmetic. Every share of the market is owned by someone, either an indexer or a stock picker, so the pickers as a group can only earn what the market earns before costs. Once their higher fees are paid, the typical picked dollar has to finish behind the typical indexed dollar, and in Kevin's menu that difference is 0.69 points a year. The argument needs no data, only the definition of a market average.
The data agree. Carhart (1997) traced most of the apparent persistence among fund winners to shared factors in stock returns and to expenses rather than to stock picking, and last year's top funds did not reliably repeat. Fama and French (2010) simulated how fund results would be spread if no manager had any skill, then set the actual spread beside it; after costs, very few funds stood out from the simulated ones. Neither study shows that no manager has skill; both show that identifying one in advance is hard, and that the fee is certain while the skill is not.
Survivorship strengthens the case. Funds that trail badly are often merged or closed, so the funds still on a menu after ten years are a selected group. Elton et al. (1996) showed that ignoring funds that disappeared overstates the performance of the survivors. The Summit Growth Fund's ten-year record is visible because the fund survived; rivals that did worse may simply have left the menu.
Taxes
Taxes are set aside on purpose. Inside a 401(k), neither fund's turnover or distributions create a tax bill until Kevin withdraws money, and both withdrawals are taxed the same way. In a taxable account the comparison would tilt further toward the index fund, whose low turnover realizes fewer gains, but that argument does not apply to this menu.
Recommendation for the Composite Investor
For Kevin's 401(k), the index fund is the stronger choice. The active fund's apparent lead disappears against a style-matched benchmark, its fee would cost about $108,767 over 25 years at equal gross returns, and the general evidence offers little reason to expect its managers to overcome that cost. If Kevin wants a growth tilt, a low-cost growth index fund, if the plan offered one, would deliver the style without the fee. This recommendation concerns the composite investor and composite funds described here. A real participant would need to check the actual menu, the funds' prospectuses and the current fee disclosures before deciding.
References
Carhart, M. M. (1997). On persistence in mutual fund performance. The Journal of Finance, 52(1), 57-82. https://doi.org/10.1111/j.1540-6261.1997.tb03808.x
Elton, E. J., Gruber, M. J., & Blake, C. R. (1996). Survivor bias and mutual fund performance. The Review of Financial Studies, 9(4), 1097-1120. https://doi.org/10.1093/rfs/9.4.1097
Fama, E. F., & French, K. R. (2010). Luck versus skill in the cross-section of mutual fund returns. The Journal of Finance, 65(5), 1915-1947. https://doi.org/10.1111/j.1540-6261.2010.01598.x
Sharpe, W. F. (1991). The arithmetic of active management. Financial Analysts Journal, 47(1), 7-9. https://doi.org/10.2469/faj.v47.n1.7
The Purdue Global MT483 Unit 5 instructions
In MT483's fifth unit, the report typically pits an actively managed fund against an index alternative on fees and results. Begin with the figures a participant would see: category, expense ratio, benchmark and trailing returns. Test whether the benchmark matches the fund's style, and restate the record against one that does. Convert expense ratios into dollars on a stated balance and contribution schedule, holding gross returns equal so cost is the only difference. Identify the hurdle the active fund must clear. Bring in evidence on active funds as a group, cited by author and year or by report edition. Address taxes only where they differ between the choices. Close with a recommendation for the described investor, labeled as such, and note what a real participant would need to check.
How the MT 483 Unit 5 example is put together
Kevin's choice is introduced through the plan menu, where the active fund looks better. The two funds are described with their holdings, fees and returns, and $10,000 is grown at each rate. A section on style explains why a growth fund measured against the whole market is partly credited for its style, under a highlighted line on holding style constant. The prospectus benchmark reverses the result. Fees follow in dollars, $604 against $17 in year one, then the 25 year projection and the 0.69 point hurdle. Sharpe's arithmetic, Carhart on persistence, Fama and French on luck, and Elton and colleagues on fund survivors build the general case. Taxes are set aside because both funds sit in a 401(k), and the recommendation favors the index fund for the composite participant only.
Reading the MT483 Unit 5 grading rubric
Benchmark choice is usually the first thing instructors check, because a growth fund compared with a broad index is the trap this report is built to expose. Marks go to restating results against a style-matched index and saying what the managers added or gave back. Fees earn credit when they become dollars on the investor's own balance, and the projection must hold gross returns equal or it mixes skill with cost. Evidence on active management should be specific: study, year and finding, or report, edition and category. Survivorship earns a sentence. Tax treatment is assessed for fit, so applying taxable-account arguments to a 401(k) costs points. The closing recommendation is judged by how directly it grows out of the benchmark and fee findings, and by staying inside the composite case.
Common MT483 Unit 5 mistakes, and how to avoid them
Reports often crown the active fund on its headline lead and never ask what the right comparison would be. Another weak pattern leaves the expense ratio as a percentage, which hides a difference worth tens of thousands of dollars over decades. Some projections give each fund its own past return going forward, so the conclusion rests on the assumption that history repeats. Students sometimes cite active fund evidence from memory, with no edition or category, which a reader cannot verify. Tax paragraphs copied from taxable account guides do not apply inside a retirement plan. Before submitting, rerun the projection with identical gross returns, compute the first year fee for each fund in dollars, and check that every outside figure has a source a grader could look up.
Get an MT483 Unit 5 example written to your instructions
Plan menus and fund pairs vary by section, and some Unit 5 prompts name real funds. Send the pair yours specifies with the rubric: a first MT483 report is written free, benchmark matched to style, fees converted to dollars on the investor's balance and group evidence cited by edition. Delivery takes 24-48h. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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MT483 Unit 5 questions, answered
How do I pick the right benchmark for a fund?
Start with the index the fund names in its prospectus, then check whether it fits the fund's actual holdings. A growth fund should be compared with a growth index, a small-company fund with a small-company index. If the fund's chosen benchmark flatters it, say so and add a better match. Graders reward the reasoning behind the choice.
Should the report consider taxes?
Only where they differ. Inside a 401(k) or similar tax-deferred account, the two funds face the same tax treatment until withdrawal, so turnover-driven tax costs drop out. In a taxable account, distributions and turnover matter and should be included. State which account the comparison assumes, since the right treatment follows from it.
Where can I find evidence on active funds as a group?
Morningstar's Active/Passive Barometer and scorecards published by index providers report success rates by category and horizon, usually twice a year. Cite the edition, category and period for any figure, because results vary widely across them. Bracket a figure you cannot confirm rather than rounding one from memory, since graders in finance courses often check.
Where can I find a free MT483 Unit 5 sample paper?
This page holds the complete MT483 Unit 5 report comparing a composite active growth fund with an index fund on a style-matched benchmark and on fees over 25 years.
Why does the MT483 Unit 5 sample give both funds the same gross return?
Holding gross returns equal isolates the expense ratio, so the $108,767 gap after 25 years measures cost alone rather than a guess about future skill.