The Bruin Stock Fund sells Class A shares that have a front-end load of 5.6 perc
ID: 2722690 • Letter: T
Question
The Bruin Stock Fund sells Class A shares that have a front-end load of 5.6 percent, a 12b-1 fee of .26 percent, and other fees of 0.82 percent. There are also Class B shares with a 5 percent CDSC that declines 1 percent per year, a 12b-1 fee of 1.15 percent, and other fees of .82 percent. Assume the portfolio return is 13 percent per year.
What is the value of $1 invested in each share class if your investment horizon is 3 years? (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "$" sign in your response.)
What if your investment horizon is 20 years? (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "$" sign in your response.)
The Bruin Stock Fund sells Class A shares that have a front-end load of 5.6 percent, a 12b-1 fee of .26 percent, and other fees of 0.82 percent. There are also Class B shares with a 5 percent CDSC that declines 1 percent per year, a 12b-1 fee of 1.15 percent, and other fees of .82 percent. Assume the portfolio return is 13 percent per year.
Explanation / Answer
1)
Class A
Front End Load = 5.6%
Thus, net investment after front end load = 1 * (1 - 5.6%) = $0.944
Portfolio Return per year = 13%
Fees Charged = 0.26% + 0.82% = 1.08
Net Return = 13 - 1.08= 11.92%
Value of investment after 3 years = 0.944 * (1 + 11.92%)3 = $1.598%
Class B
Fees in year 1 = 5 + 1.15 + 0.82 = 6.97%
Net Return in year 1 = 13 -6.97 = 6.03%
Fees in year 2 = 4 + 1.15 + 0.82 =5.97%
Net Return in year 1 = 13- 5.97= 7.03%
Fees in year 3= 3 + 1.15 + 0.82 = 4.97%
Net Return in year 1 = 13- 4.97 =8.03 %
Value of $1 investment in 3 years = 1 * ( 1 + 6.03%)* ( 1 + 7.03%)* ( 1 + 8.03%) = $1.23
2) In 20 years
Value of $1 investment in Class A = 0.944 * (1 + 11.97%)20 = $9.057
Value of $1 investment in Class B
= 1 * ( 1 + 6.03%)* ( 1 + 7.03%)* ( 1 + 8.03%) * ( 1 + 9.03%)*( 1 + 10.03%)* ( 1 + 11.03%)15 = $6.15
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