3. The Equity Fund cells Class A shares with a front-end load of 4% and Class B

Question

3. The Equity Fund cells Class A shares with a front-end load of 4% and Class B shares with 12b-1 fees of 0.5% 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 rate of return on the fund portfolio net of operating expenses is 10% annually. What will be the value of a $10,000 investment in Class A and Class B shares if the shares are sold after (a) 1 year, (b) 4 years, (c) 15 years? Which fee structure provides higher net proceeds at the end of each investment horizons?

Explanation / Answer

Class A Class B Better Option a) 9,600*(1.10)^1 10,000*(1.095)^1*(0.96) $10,560.00 $10,512.00 A b) 9,600*(1.10)^4 10,000*(1.095)^4*(0.99) $14,055.36 $14,232.84 B c) 9,600*(1.10)^15 10,000*(1.095)^15 $40,101.58 $39,013.22 A

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.