Question

Loaded-Up Fund charges a 12b-1 fee of 1% and maintains an expense ratio of 0.75%. Economy Fund charges a front-end load of 2%, 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.

a.	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.)

Loaded-Up Fund	$
Economy Fund	$

b.	How much will an investment of $100 in each fund grow to after 5 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Loaded-Up Fund	$
Economy Fund	$

c.	How much will an investment of $100 in each fund grow to after 12 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Loaded-Up Fund	$
Economy Fund	$

Answer 1

Given that:
Initial investment=$100
Expense ratio of Loaded-up fund is 0.75%, it has 12b-1 fee of 1% and has no front-end load.
Expense ratio of Economy fund is 0.25%, has a front-end load of 2% and has no 12b-1 fee
Rate of return=7%
Now, value of investment=Initial investment × (1 - front-end load) × (1 + rate of return - true expense ratio)^Number of years

Loaded-Up Fund: Using the formula we can calculate the end value of the investment in the given years.
In case of loaded-up fund, we need to add the 12b-1 fee to the expenses to get the value of true expense ratio.
True expense ratio=Expense ratio + (12b-1 fee)=.75%+1%=0.0175

(a): Year 1: 100*(1-0%)*(1+7%-0.0175)^1=100*(1.0525)^1=$105.25
(b): Year 5: 100*(1-0%)*(1+7%-0.0175)^5=100*(1.0525)^5=$129.1547915 or $129.15 (Rounded to two decimal places)
(c): Year 12: 100*(1-0%)*(1+7%-0.0175)^12=100*(1.0525)^12=$184.7843787 or $184.78 (Rounded to two decimal places)

Economy fund: Using the formula we can calculate the end value of the investment in the given years.
(a): Year 1: 100*(1-2%)*(1+7%-0.25%)^1=100*(0.98)*(1.0675)^1=$104.615 or $104.62 (Rounded to two decimal places)
(b): Year 5: 100*(1-2%)*(1+7%-0.25%)^5=100*(0.98)*(1.0675)^5=$135.8518304 or $135.85 (Rounded to two decimal places)
(c): Year 12: 100*(1-2%)*(1+7%-0.25%)^12=100*(0.98)*(1.0675)^12=$214.605417 or $214.61 (Rounded to two decimal places)