Question

Loaded-Up Fund charges a 12b-1 fee of 1% and maintains an expense ratio of 0.70%. Economy Fund charges a front-end load of 2%, but has no 12b-1 fee and an expense ratio of 0.30%. Assume the rate of return on both funds’ portfolios (before any fees) is 8% per year.

How much will an investment of $100 in each fund grow to after 12 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Loaded-Up Fund	$
Economy Fund	$

Answer 1

Solution:
	Loaded-Up Fund	$208.16
	Economy Fund	$238.68
Working Notes:
	Loaded-Up Fund
	Value of investment at end of Tth year = Investment amount (1-Fornt 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
		= 0.70 % + 1%
		=1.70 %
	Investment = $100
	Front end load = 0%
	rate of return = 8%
	True expense ratio = 1.70%
	T = 12 years
	Value of investment at end of Tth year = Investment amount (1-Fornt end load ) x ( 1+ rate of return - true expense ratio)^T
	=$100 x (1-0%) x (1+8% - 1.70%)^12
	=$100 x 1 x (1+0.08-0.017)^12
	=$208.1609083
Loaded-Up Fund	=$208.16
	Economy Fund
	Value of investment at end of Tth year = Investment amount (1-Fornt 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 = $100
	Front end load = 2%
	rate of return = 8%
	True expense ratio = 0.30%
	T = 12 years
	Value of investment at end of Tth year = Investment amount (1-Fornt end load ) x ( 1+ rate of return - true expense ratio)^T
	=$100 x (1-2%) x (1+8% - 0.30%)^12
	=$100 x 0.98 x (1+0.08-0.003)^12
	=$238.679168
Economy Fund	=$238.68
Please feel free to ask if anything about above solution in comment section of the question.