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In: Finance

The performance and fees of 4 share classes of the same fund are in following table:...

The performance and fees of 4 share classes of the same fund are in following table:

                                      Class Inst                Class Inv               Class A                  Class B

Expense ratio                     1%                          1%                        1%                       1%

12b-1 fee                                                            0.3%                     0.1%

Front-end load                                                                                 4%

Back-end load                                                                                                           start at 6%

                                                                                                                                    and ↓ 1%/year

All share classes have the same annual rate of return of 10.0%. If you have $10,000 to invest

in each of these share classes, how much will you get if you plan to sell them after 2 and 8

years?

Solutions

Expert Solution

Class Inst Class Inv Class A Class B
Expense ratio 1% 1% 1% 1%
12b-1 fee 0.30% 0.10%
Rate of return 10% 10% 10% 10%
Rate of return net of expense 9.00% 8.70% 8.90% 9.00%
Front end load 0% 0% 4% 0%
Amount invested $         10,000.00 $            10,000.00 $          10,000.00 $         10,000.00
Actual amount invested =10000*(1-0%) =10000*(1-0%) =10000*(1-4%) =10000*(1-0%)
Actual amount invested $         10,000.00 $            10,000.00 $            9,600.00 $         10,000.00
Amount after 2 year on invested amount =10000*(1+9%)^2 =10000*(1+8.7%)^2 =9600*(1+8.9%)^2 =10000*(1+9%)^2
Amount after 2 year on invested amount $         11,881.00 $            11,815.69 $          11,384.84 $         11,881.00
Back end charge 0% 0% 0% 5%
Amount net of back end charge =11881*(1-0%) =11815.69*(1-0%) =11384.84*(1-0%) =11881*(1-5%)
Amount net of back end charge $         11,881.00 $            11,815.69 $          11,384.84 $         11,286.95
Amount after 8 year on invested amount =10000*(1+9%)^8 =10000*(1+8.7%)^8 =9600*(1+8.9%)^8 =10000*(1+9%)^8
Amount after 8 year on invested amount $         19,925.63 $            19,491.10 $          18,988.66 $         19,925.63
Back end charge 0% 0% 0% 0%
Amount net of back end charge =19925.63*(1-0%) =19491.1*(1-0%) =18988.66*(1-0%) =19925.63*(1-0%)
Amount net of back end charge $         19,925.63 $            19,491.10 $          18,988.66 $         19,925.63

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