Question

In: Finance

A mutual fund has the following fees and expenses. Front load of 6%, back load of...

A mutual fund has the following fees and expenses. Front load of 6%, back load of 1%, 12b-1 of 0.25% and annual expenses of 1.5%. The return on the portfolio assets is 12%. Another mutual fund has the following fees and expenses. Front load of 0%, back load of 0%, 12b-1 of 2% and annual expenses of 1.5%. The return on the portfolio assets is 12%.

a)If you invest $10,000 today in both funds, how much will you have at the end of 10 years in each fund?

b) At what point do the two funds give the same return?

Solutions

Expert Solution

Aswer-(a)

Mutual Fund-A Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 Year-7 Year-8 Year-9 Year-10
Opening value $10,000
Front Load fee @6% [ $10000*6%] $600
Actual amount invested in fund or Opening value [$10000-$600](A) $9,400 $10,353 $11,420 $12,616 $13,955 $15,454 $17,134 $19,015 $21,122 $23,481
12b-1 expenses[ $10000* 0.25%](B) $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00
Annual Expenses[$10000*1.5%](C) $150 $150 $150 $150 $150 $150 $150 $150 $150 $150
Back load (E)

$263

[$23481+$2818]*1%

Return on asset[Actual amt invested or Opening value+12%](D) $1,128 $1,242 $1,370 $1,514 $1,675 $1,855 $2,056 $2,282 $2,535 $2,818
Closing Value of the Fund(A+D-B-C-E) $10,353 $11,420 $12,616 $13,955 $15,454 $17,134 $19,015 $21,122 $23,481 $25,861
Yearly return [(Closing-Opening)/ opening] 3.53% 10.31% 10.47% 10.61% 10.75% 10.87% 10.98% 11.08% 11.17% 10.13%
Accumulated Return[ (Closing-$10000)/$10000] 3.53% 14.20% 26.16% 39.55% 54.54% 71.34% 90.15% 111.22% 134.81% 158.61%

Vaue of first Mutual fund at the end of year 10 = $25861

Mutual Fund-B Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 Year-7 Year-8 Year-9 Year-10
Opening value $10,000
Front Load fee@0% $0
Actual amount invested in fund or Opening value [$10000-$0](A) $10,000 $10,850 $11,802 $12,868 $14,062 $15,400 $16,898 $18,576 $20,455 $22,559
12b-1 expenses[ Actual amount invested * 2%](B) $200.00 $200.00 $200.00 $200.00 $200.00 $200.00 $200.00 $200.00 $200.00 $200.00
Annual Expenses[$10000*1.5%](C) $150 $150 $150 $150 $150 $150 $150 $150 $150 $150
Back load (E) $0
Return on asset[Actual amt invested or Opening value+12%](D) $1,200 $1,302 $1,416 $1,544 $1,687 $1,848 $2,028 $2,229 $2,455 $2,707
Closing Value of the Fund(A+D-B-C-E) $10,850 $11,802 $12,868 $14,062 $15,400 $16,898 $18,576 $20,455 $22,559 $24,916
Yearly return [(Closing-Opening)/ opening] 8.50% 8.77% 9.03% 9.28% 9.51% 9.73% 9.93% 10.12% 10.29% 10.45%
Accumulated Return[ (Closing-$10000)/$10000] 8.50% 18.02% 28.68% 40.62% 54.00% 68.98% 85.76% 104.55% 125.59% 149.16%

Vaue of second Mutual fund at the end of year 10 = $24916.

Abswer-(b)

At year 5 the two funds will give almost same return


Related Solutions

A mutual fund charges 6% front-end load and 1% operating and 12b-1 expenses. At the beginning...
A mutual fund charges 6% front-end load and 1% operating and 12b-1 expenses. At the beginning of the year, the fund has $100 million assets under management and 10 million shares outstanding. During the year the value of assets held by the fund increases by 12% and the fund receives dividends of $1 million. What is the fund's NAV at the end of the year? (The number of mutual fund shares outstanding is still 10 million at the end of...
A mutual fund charges 6% front-end load and 3% operating and 12b-1 expenses. At the beginning...
A mutual fund charges 6% front-end load and 3% operating and 12b-1 expenses. At the beginning of the year, the fund has $200 million assets under management and 10 million shares outstanding. During the year the value of assets held by the fund increases by 10% and the fund receives dividends of $2 million. What is the fund's NAV at the end of the year? (The number of mutual fund shares outstanding is still 10 million at the end of...
A mutual fund charges 6% front-end load and 3% operating and 12b-1 expenses. At the beginning...
A mutual fund charges 6% front-end load and 3% operating and 12b-1 expenses. At the beginning of the year, the fund has $200 million assets under management and 10 million shares outstanding. During the year the value of assets held by the fund increases by 10% and the fund receives dividends of $2 million. What is the fund's NAV at the end of the year? (The number of mutual fund shares outstanding is still 10 million at the end of...
You invest in a mutual fund that charges a 3% front-end load, 1% total annual fees,...
You invest in a mutual fund that charges a 3% front-end load, 1% total annual fees, and a 0.5% back-end load. How much will you pay in fees on a $15,000 investment that does not grow if you cash out after 5 years of no gain? You invest in a mutual fund that charges a 3% front-end load, 1% total annual fees, and a 2% back-end load, which decreases .5% per year. How much will you pay in fees on...
You invest in a mutual fund that charges a 3% front-end load, 1% total annual fees,...
You invest in a mutual fund that charges a 3% front-end load, 1% total annual fees, and a 0% back-end load on Class A shares. The same fund charges a 0% front-end load, 2% total annual fees, and a 2% back-end load on Class B shares. If you plan to sell the fund after 4 years, which is a better choice, Class A shares or Class B shares?  Assume $100 is invested, and assume a 10% annual return before expenses.
You are considering an investment in a mutual fund with a 4% front-end load. The fund...
You are considering an investment in a mutual fund with a 4% front-end load. The fund charges a back-end load of 5, 4, 3, 2, and 1 percent if the shares are redeemed within the first 5 years, respectively. The expense ratio of 0.5%. Alternatively, you can invest instead in a bank saving account paying 6% interest per year. 1. If you plan to invest for 3 years, what annual rate of return must the fund portfolio earn for you...
You are considering an investment in a mutual fund with a 4% front-end load. The fund...
You are considering an investment in a mutual fund with a 4% front-end load. The fund charges a back-end load of 5, 4, 3, 2, and 1 percent if the shares are redeemed within the first 5 years, respectively. The expense ratio of 0.5%. Alternatively, you can invest instead in a bank saving account paying 6% interest per year. a. If you plan to invest for 3 years, what annual rate of return must the fund portfolio earn for you...
You are considering an investment in a mutual fund with a 4% front-end load. The fund...
You are considering an investment in a mutual fund with a 4% front-end load. The fund charges a back-end load of 5, 4, 3, 2, and 1 percent if the shares are redeemed within the first 5 years, respectively. The expense ratio of 0.5%. Alternatively, you can invest instead in a bank saving account paying 6% interest per year. a. If you plan to invest for 3 years, what annual rate of return must the fund portfolio earn for you...
You are considering an investment in a mutual fund with a 5% front-end load and an...
You are considering an investment in a mutual fund with a 5% front-end load and an expense ratio of 1.45%. You can invest instead in a bank CD paying 7% interest. a. If you plan to invest for two years, what annual rate of return must the fund portfolio earn for you to be better off in the fund than in the CD? Assume annual compounding of returns. (Do not round intermediate calculations. Enter your answer as a percentage rounded...
You are going to invest in a stock mutual fund with a front-end load of 6.5...
You are going to invest in a stock mutual fund with a front-end load of 6.5 percent and an expense ratio of 1.37 percent. You also can invest in a money market mutual fund with a return of 2.7 percent and an expense ratio of 0.20 percent. If you plan to keep your investment for 2 years, what annual return must the stock mutual fund earn to exceed an investment in the money market fund? What if your investment horizon...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT