Question

Help Save & Exit Submit Check my work Suppose an individual invests $20,000 in a load mutual fund for two years. The load fee entails an up-front commission charge of 2 percent of the amount Invested and is deducted from the original funds invested. In addition, annual fund operating expenses (or 12b-1 fees) are 0.75 percent. The annual fees are charged on the average net asset value Invested in the fund and are recorded at the end of each year. Investments in the fund return 5 percent each year pald on the last day of the year. If the investor reinvests the annual returns paid on the investment, calculate the annual return on the mutual fund over the two-year Investment period. (Do not round Intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) Annual return < Prev 7 of 10 ! Next > O2 UROL100 ACOM

Answer 1

Initial investment = $20,000
Up front commission = $20,000 * 0.02 = $400
Net amount invested for year 1 = $20,000 - $400 = $19,600
Interest received for investment at end of year 1 = $19,600 * 0.05 = $980
Total amount of money in investment = $19,600 + $980 = $20,580
Annual operating expense = $20,580 * 0.75% = $154.35
Net value of at beginning of year 2 = $20,580 - $154.35 = $20,425.65
Interest received for investment at end of year 2 = $20,425.65 * 0.05 = $1,021.283
Total value of investment at end of year 2 = $20,425.65 + $1,021.283 = $21,446.933
Annual operating expense = $21,446.933 * 0.75% = $160.852
Net value of investment at end of year 2 = $21,446.933 - $160.852 = $21,286.08
Annual return = ($21,286.08/$20,000)^(1/2) - 1 = 0.03165 = 3.165%