Question

The Bruin Stock Fund sells Class A shares that have a front-end load of 4.9 percent, a 12b-1 fee of 0.40 percent, and other fees of 1.24 percent. There are also Class B shares with a 5 percent CDSC that declines 1 percent per year, a 12b-1 fee of 1.85 percent, and other fees of 1.24 percent. Assume the portfolio return is 9 percent per year.

a. 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.)

Investment Value

Class A

Class B

b. What if your investment horizon is 20 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Investment Value

Class A

Class B

Answer 1

Please do Upvote if you are served. Feel free to reach out in the comments

Cheers!!!

Answer:

1)

For Class A we have

Front End Load = 4.9%

=> Net investment after front end load = 1 * (1 - 4.9%) = $0.951$

Portfolio Return/yr = 9%

Charged fees = 0.40% + 1.24% = 1.64%

Net Return = 9 - 1.64 = 8.36%

=> Investment value after 3 yrs = 0.951 * (1 + 8.36%)³ = $1.21

For Class B we have

Fees in year 1 = 5 + 1.85 + 1.24 = 8.09%

Net Return for yr 1 = 9 - 8.09 = 0.91%

Fees in year 2 = 4 + 1.85 + 1.24 = 7.09%

Net Return for yr 2 = 9 - 7.09 = 1.91%

Fees in year 3 = 3 + 1.85+ 1.24 = 6.09%

Net Return in year 1 = 09 - 6.09 = 3.91%

=>Investment value in 3 years = 1 * ( 1 + 0.91%)* ( 1 + 1.91%)* ( 1 + 2.91%) = $1.058

For 20 years:

Value of $1 investment in Class A = 0.951 * (1 + 8.36%)²⁰ = $4.74

Value of $1 investment in Class B

      = 1 * ( 1 + 0.91%)* ( 1 + 1.91%)* ( 1 + 2.91%) * ( 1 + 3.91%)*( 1 + 4.91%)* ( 1 + 5.91%)¹⁵ = $2.73