The Bruin Stock Fund sells Class A shares that have a front-end load of 4.85 per
ID: 2749138 • Letter: T
Question
The Bruin Stock Fund sells Class A shares that have a front-end load of 4.85 percent, a 12b-1 fee of .41 percent, and other fees of 1.27 percent. There are also Class B shares with a 5 percent CDSC that declines 1 percent per year, a 12b-1 fee of 1.9 percent, and other fees of 1.27 percent. Assume the portfolio return is 10 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 4.85 percent, a 12b-1 fee of .41 percent, and other fees of 1.27 percent. There are also Class B shares with a 5 percent CDSC that declines 1 percent per year, a 12b-1 fee of 1.9 percent, and other fees of 1.27 percent. Assume the portfolio return is 10 percent per year.
Explanation / Answer
1)
Class A
Front End Load = 4.85%
Thus, net investment after front end load = 1 * (1 - 4.85%) = $0.9515
Portfolio Return per year = 10%
Fees Charged = 0.41% + 1.27% = 1.68
Net Return = 10 - 1.68 = 8.32%
Value of investment after 3 years = 0.9515 * (1 + 8.32%)3 = $1.21
Class B
Fees in year 1 = 5 + 1.9 + 1.27 = 8.17%
Net Return in year 1 = 10 - 8.17 = 1.83%
Fees in year 2 = 4 + 1.9 + 1.27 = 7.17%
Net Return in year 1 = 10 - 7.17 = 2.83%
Fees in year 1 = 3 + 1.9 + 1.27 = 6.17%
Net Return in year 1 = 10 - 6.17 = 3.83%
Value of $1 investment in 3 years = 1 * ( 1 + 1.83%)* ( 1 + 2.83%)* ( 1 + 3.83%) = $1.09
2) In 20 years
Value of $1 investment in Class A = 0.9515 * (1 + 8.32%)20 = $4.71
Value of $1 investment in Class B
= 1 * ( 1 + 1.83%)* ( 1 + 2.83%)* ( 1 + 3.83%) * ( 1 + 4.83%)*( 1 + 5.83%)* ( 1 + 6.83%)15 = $3.25
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