Question

The Bruin Stock Fund sells Class A shares that have a front-end load of 5 percent, a 12b-1 fee of 0.38 percent, and other fees of 1.18 percent. There are also Class B shares with a 5 percent CDSC that declines 1 percent per year, a 12b-1 fee of 1.75 percent, and other fees of 1.18 percent. Assume the portfolio return is 13 percent per year.

a.)  What is the value of $1 invested in each share class if your investment horizon is 3 years?

b.) What if your investment horizon is 20 years?

Answer 1

For every dollar invested the value of each share class is as follows:-

A. when investment horizon is 3 years

Class A = (1 - front end load) * (1 + portfolio return rate - 12b-1 fee rate - other fee rate)^{investment horizon}

= (1 - 0.05) * (1 + 0.13 -0.0038 - 0.0118)³

= 0.95 * (1.1144)³

= $ 1.3148

Class B = 1 * (1 + portfolio return rate - 12b-1 fee rate - other fee rate)^{investment horizon} * (1 - 0.02) ...{note the 0.02 in the (1-0.02) part will be 0.01 if the investment horizon is 4yrs and will completely dissapear after year 5.}

= 1 * (1 + 0.13 -0.0175 + 0.0118)³ (0.98)

= 1 * (1.1007)³

= $ 1.3335

A. when investment horizon is 20 years

Class A = (1 - front end load) * (1 + portfolio return rate - 12b-1 fee rate - other fee rate)^{investment horizon}

= (1 - 0.05) * (1 + 0.13 -0.0038 - 0.0118)²⁰

= 0.95 * (1.1144)²⁰

= $ 8.2898

Class B = 1 * (1 + portfolio return rate - 12b-1 fee rate - other fee rate)^{investment horizon}

= 1 * (1 + 0.13 -0.0175 + 0.0118)²⁰

= 1 * (1.1007)³

= $ 6.8136