Consider the following four investments. a) You invest $3,000 annually in a mutu

Question

Consider the following four investments. a) You invest $3,000 annually in a mutual fund that earns 10% annually, and you reinvest all the distributions. How much will you have in the account at the end of 20 years? b) You invest $3,000 annually in a mutual fund with a 5% load fee so that only $2,850 is actually invested in the fund. The fund ears 10% annually, and you reinvest all the distributions. How much will you have in the account at the end of 20 years? (Assume that all distributions are not subject to the load fee.) c) You invest $3,000 annually in no-load mutual fund that charges b-1 fee of 1%. The fund earns 10% annually before fees, and you reinvest all distributions. How much will you have in the account at the end of 20 years? d) You invest $3,000 annually in no-load mutual fund that has a 5% exit fee. The fund earns 10% annually before fees, and you reinvest all distributions. How much will you have in the account at the end of 20 years?

Explanation / Answer

a) You invest $3,000 annually in a mutual fund that earns 10% annually, and you reinvest all the distributions. How much will you have in the account at the end of 20 years?

Annual Investment = PMT = 3000

Rate = 10%

nper = 20

So After 20 Yrs., Corpus will be = FV(Rate,nper,pmt,pv)

= FV(10%,20,-3000,0)

=$171,825

b) You invest $3,000 annually in a mutual fund with a 5% load fee so that only $2,850 is actually invested in the fund. The fund ears 10% annually, and you reinvest all the distributions. How much will you have in the account at the end of 20 years? (Assume that all distributions are not subject to the load fee.)

Annual Investment = PMT = 3000*(1-5) = 2850

Rate = 10%

nper = 20

So After 20 Yrs., Corpus will be = FV(Rate,nper,pmt,pv)

= FV(10%,20,-2850,0)

= $163,233.75

c) You invest $3,000 annually in no-load mutual fund that charges b-1 fee of 1%. The fund earns 10% annually before fees, and you reinvest all distributions. How much will you have in the account at the end of 20 years?

Annual Investment = PMT = 3000

Rate = 10%-1% fee = 9%

nper = 20

So After 20 Yrs., Corpus will be = FV(Rate,nper,pmt,pv)

= FV(9%,20,-3000,0)

=$153,480.36

d) You invest $3,000 annually in no-load mutual fund that has a 5% exit fee. The fund earns 10% annually before fees, and you reinvest all distributions. How much will you have in the account at the end of 20 years?

Annual Investment = PMT = 3000

Rate = 10%

nper = 20

So After 20 Yrs., Corpus will be = FV(Rate,nper,pmt,pv)

= FV(10%,20,-3000,0)

= $171,825.00

As there is exit Fee of 5%, we will receive $171,825*(1-5%) = $163,233.75

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.