Question

The Bruin Stock Fund sells Class A shares that have a front-end load of 7.5 percent, a 12b-1 fee of 0.27 percent, and other fees of 0.71 percent. There are also Class B shares with a 5 percent CDSC that declines 1 percent per year, a 12b-1 fee of 1.19 percent, and other fees of 0.78 percent. Assume the portfolio return is 11 percent per year. What is the difference in values of $1 invested in each share class if your investment horizon is 23 years?

Answer 1

Investment amount for Class A shares = Initial investment * (1 - front end load)
= $1 * (1 - 0.075)
= $0.925

Future value of Class A shares = Present value * (1 + required rate - 12b-1 fees - other fees)^n

= $0.925 * (1 + 0.11 - 0.0027 - 0.0071)^23

= $0.925 * 1.1002^23

= $0.925 * 8.9918

= $8.3174

Investment amount for Class A shares = $1

Future value of Class B shares after 23 years = Present value * (1 + required rate - 12b-1 fees - other fees)^n

= $1 * (1 + 0.11 - 0.0119 - 0.0078)^23

= $1 * 1.0903^23

= $1 * 7.303958

= $7.303958

Difference in values = Future value of class A shares - Future value of Class B shares

= $8.3174 - $7.3040

= $1.01