Question

The Investments Fund sells Class A shares with a front-end load of 6% and Class B shares with 12b-1 fees of 1% annually as well as back-end load fees that start at 5% and fall by 1% for each full year the investor holds the portfolio (until the fifth year). Assume that you have $1,000 to invest and the portfolio rate of return net of operating expenses is 11% annually. a-1. If you invest in each fund and sell after 4 years, how much will you receive from each sale

Answer 1

Answer:

An amount of $1,457.35 from the sale of Class A, while $1,449.46 will be received from the sale of Class B.

Explanation:

For Class A shares

Amount to receive from A sales = Invested amount × (1 + r)^n × (1 - growth fluctuation difference)

Where;

r = Portfolio rate of return = 11%, or 0.11

n = number of years = 4

Therefore, we have:

Amount to receive from Class A sale = $1,000 × (1 + 0.11)^4 × (1 - (0.05 - 0.01)) =  $1,457.35

For Class B

Amount to receive from Class B sale = Invested amount × (1 + f)^n × (1 - falling rate)

Where;

f = r - annual fees = 0.11 - 0.01 = 0.10

Therefore, we have:

Amount to receive from Class B sale = $1,000 × (1 + 0.10)^4 × (1 - 0.01) = $1,449.46

Therefore, $1,457.35 from the sale of Class A, while $1,449.46 will be received from the sale of Class B.