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mel-nik [20]
3 years ago
10

Item12 10 points eBookPrintReferences Check my work Check My Work button is now enabledItem 12Item 12 10 points Problem 4-19 Loa

ded-Up Fund charges a 12b-1 fee of 0.75% and maintains an expense ratio of 0.75%. Economy Fund charges a front-end load of 2.5%, but has no 12b-1 fee and an expense ratio of 0.25%. Assume the rate of return on both funds’ portfolios (before any fees) is 7% per year. How much will an investment of $1,000 in each fund grow to after:
a. 1 year
b. 3 years
c. 10 years
Business
1 answer:
USPshnik [31]3 years ago
4 0

Answer:

<u><em>Loaded-up fund:</em></u>

1-year:    1,055

3-year:    1.174,24

10-year: 1,708.14

<em><u>Economy Fund:</u></em>

1-year:    1,040.81

3-year:    1,186.06

10-year: 1,873.63

Explanation:

<u>Loaded-up fund:</u>

0.75% + 0.75% = 1.5%

7% return - 1.5% = 5.5%

after a year:

1,000 x 1.055 = 1,055

after three years:

1,000 x 1.055^3 = 1.174,24

after ten years:

1,000 x 1.055^10 =1,708.14

<u>Economic Fund:</u>

discounting the front-end load

1,000 x (1 - 0.025) = 975

then:

7%  -  0.25% = 6.75%

after a year:

975 x 1.0675 = 1.040,81

after three years:

975 x 1.0675^3 = 1.186,06

after ten years:

975 x 1.0675^10 =1,873.63

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