Loaded-Up Fund charges a 12b-1 fee of 1% and maintains an expense ratio of 0.90%

Question

Loaded-Up Fund charges a 12b-1 fee of 1% and maintains an expense ratio of 0.90%. Economy Fund charges a front-end load of 2%, but has no 12b-1 fee and an expense ratio of 0.10%. Assume the rate of return on both funds’ portfolios (before any fees) is 5% per year. a. How much will an investment of $100 in each fund grow to after 1 year? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Loaded-Up Fund $ Economy Fund $ b. How much will an investment of $100 in each fund grow to after 2 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Loaded-Up Fund $ Economy Fund $ c. How much will an investment of $100 in each fund grow to after 9 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Loaded-Up Fund $ Economy Fund $

Explanation / Answer

the end value of investment will bev equal to => I * (1-Front end load) * ( 1+ r- true expense ratio)n

True expense rztio => Expense ratio + 12b-1 fee => 1%+0.90 => 1.90%

Loaded => 100* (1.05 - 0.0190)n

Economy fund => (100 - 2%)* (1.05 - 0.0010)n

Year 1

Loaded => $103.10

Economy => $102.80

Year2

Loaded => $106.30

Economy => $107.84

Year 9

Loaded => $131.62

Economy => $150.73

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