Loaded-Up Fund charges a 12b-1 fee of 1% and maintains an expense ratio of 0.60%

Question

Loaded-Up Fund charges a 12b-1 fee of 1% and maintains an expense ratio of 0.60%. Economy Fund charges a front-end load of 2%, but has no 12b-1 fee and an expense ratio of 0.40%. Assume the rate of return on both funds’ portfolios (before any fees) is 5% per year.

How much will an investment of $100 in each fund grow to after 1 year? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

How much will an investment of $100 in each fund grow to after 2 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

How much will an investment of $100 in each fund grow to after 11 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Loaded-Up Fund charges a 12b-1 fee of 1% and maintains an expense ratio of 0.60%. Economy Fund charges a front-end load of 2%, but has no 12b-1 fee and an expense ratio of 0.40%. Assume the rate of return on both funds’ portfolios (before any fees) is 5% per year.

Explanation / Answer

Answer to Part B.

End Value of Investment = Investment * (1 – Front End load) * (1 + r – True Expense Ratio)^t

Economy Fund:
End Value of Investment = $100 * (1 – 0.02) * (1 + 0.05 – 0.0040)^2
End Value of Investment = $100 * 0.98 * 1.0941
End Value of Investment = $107.22

Answer to Part C.

End Value of Investment = Investment * (1 – Front End load) * (1 + r – True Expense Ratio)^t

Economy Fund:
End Value of Investment = $100 * (1 – 0.02) * (1 + 0.05 – 0.0040)^11
End Value of Investment = $100 * 0.98 * 1.6400
End Value of Investment = $160.72

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