Question

as an expense ratio of 0.80 percent per year. Flounder Mutual Fund ratio of 0.30%, but also has a front-end load of 1.00%. Suppose that the has a lower annual rate of re expense turn on both funds is 6%, before fees. How much will a $10,000 investment in each fund grow to after 9 years?

Answer 1

Solution:
	Cod Mutual Fund	$15,781.26
	Flounder Mutual Fund	$16,304.60
Working Notes:
	Cod Mutual Fund
	Value of investment at end of Tth year = Investment amount (1-Front end load ) x ( 1+ rate of return - true expense ratio)^T
	True expense ratio = Expense ratio + 12b-1 fee
	True expense ratio for loaded fund = Expense ratio + 12b-1 fee
		= 0.80 % + 0%
		=0.80 %
	Investment = $10,000
	Front end load = 0%
	rate of return = 6%
	True expense ratio = 0.80%
	T = 9 years
	Value of investment at end of Tth year = Investment amount (1-Front end load ) x ( 1+ rate of return - true expense ratio)^T
	=$10,000 x (1-0%) x (1+ 6% - 0.80%)^9
	=$10000 x 1 x (1+0.06-0.008)^9
	=$10000 x 1 x 1.57812593955
	=$15,781.2594
	=$15,781.26
	Flounder Mutual Fund
	Value of investment at end of Tth year = Investment amount (1-Front end load ) x ( 1+ rate of return - true expense ratio)^T
	True expense ratio = Expense ratio + 12b-1 fee
	True expense ratio for loaded fund = Expense ratio + 12b-1 fee
		= 0.30 % +0%
		=0.30 %
	Investment = $10000
	Front end load = 1%
	rate of return = 6%
	True expense ratio = 0.30%
	T = 9 years
	Value of investment at end of Tth year = Investment amount (1-Front end load ) x ( 1+ rate of return - true expense ratio)^T
	=$10000 x (1-1%) x (1+6% - 0.30%)^9
	=$10000 x 0.99 x (1+0.06-0.003)^9
	=$16,304.60
Please feel free to ask if anything about above solution in comment section of the question.