Question

1. Loaded-Up Fund charges a 12b-1 fee of 1% and maintains an expense ratio of 0.60%. Economy Fund charges a front-end load of 2%, but has no 12b-1 fee and an expense ratio of 0.40%. Assume the rate of return on both funds’ portfolios (before any fees) is 5% per year.

1. How much will an investment of $100 in each fund grow to after 1 year?

Loaded-Up Fund       

Economy Fund          

2. How much will an investment of $100 in each fund grow to after 2 years?

Loaded-Up Fund       

Economy Fund          

3. How much will an investment of $100 in each fund grow to after 11 years?

Loaded-Up Fund       

Economy Fund          

Answer 1

For loaded fund it charges a 12b-1 fee of 1% and 0.60% of epense ratio, so total cost would be Front end commission is similar to a sales commission, so the amount invested would be after the commission (1% +0.6%) Since the economy fund has a front end load fee of 2% and expense ratio of 0.40% 1.60% Return is 5% before fee Return from the fund is 5% before fees $100 after 1 year $100 after 1 year 100*(1+0.05-0.016)^1 100*(1-0.02)*(1+0.05-0.004) 103.4 102.51 $100 after 2 years $100 after 2 year 100*(1+0.05-0.016)^2 100*(1-0.02)*(1+0.05-0.004)^2 106.92 107.22 $100 after 11 years $100 after 11 years 100*(1+0.05-0.016) 11 100*(1-0.02)*(1+0.05-0.004)^11 144.45 160.72