The Investments Fund sells Class A shares with a front-end load of 6% and Class
ID: 2788947 • Letter: T
Question
The Investments Fund sells Class A shares with a front-end load of 6% 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 that you have $1,000 to invest and the portfolio rate of return net of operating expenses is 10% annually.
a.
If you invest in each fund and sell after 4 years, how much will you receive from each sale?
b. If you invest in each fund and sell after 15 years, how much will you receive from each sale?
The Investments Fund sells Class A shares with a front-end load of 6% 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 that you have $1,000 to invest and the portfolio rate of return net of operating expenses is 10% annually.
a.
Explanation / Answer
Amount Available =$1,000
Front-End Load on Class-A shares = 6%
Annual Fee for Class-B shares = 0.50%
Portfolio return net of operating expenses=10%
a.) Fund is sold after 4 years,
Amount Received from Class-A shares sale=$(1-0.06)x(1+0.10)4x1000 =$0.94x1.4641x1000 =$1376.254
Back-End Load applicable for 4 years of holding =5%-4x1% =1%
Amount Received from Class-B shares sale at end of Year-4=$(1+0.10)4x1000x(1-0.05)4x(1-0.01)
=$1.4641x1000x0.8145x0.99
=$1180.59
b.) Fund is sold after 15 years,
Amount Received from Class-A shares sale=$(1-0.06)x(1+0.10)15x1000 =$0.94x4.1777x1000 =$3926.61
Back-End Load applicable for 4 years of holding =Max{5%-15x1%,0} =0%
Amount Received from Class-B shares sale at end of Year-4=$(1+0.10)15x1000x(1-0.05)15x(1-0.00)
=$4.1777x1000x0.4633x0.00
=$1915.92
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