Question

Question 4. If you invest 9,190 at t = 0 in a mutual fund, then how much do you have at t = 40 if the annual gross return is 0.097? For this exercise you can assume that the expense ratio is 0.011 per year.

Question 5: If you invest 9,255 at t = 0 in a mutual fund, then how much do you have at t = 40 if the annual gross return is 0.11? For this exercise you can assume that the expense ratio is 0.009 per year and the front-end load is 0.016 and the back-end load is 0.011.

Answer 1

Q4. Each Year return is 9.7% and annual expense is 1.1% i.e Net we earn 8.6% pa

We need to find the future value of 9190 investment after 40 years.

We know, FV= PV (1+R)^N

FV= 9190 (1+8.6%)^40 = 249,177 .33

Q5.

A front-end load is a commission or sales charge applied at the time of the initial purchase of an investment. The term most often applies to mutual fund investments. The front-end load is deducted from the initial deposit, or purchase funds and, as a result, lowers the amount of money actually going into the investment product.

A back-end load is a fee paid by investors when selling mutual fund shares, and it is expressed as a percentage of the value of the fund's shares. This results in lower value received by investors.

Money invested by investor = 9255

Money net invested in the fund = 9255 - front end load

= 9255 (1-1.6%)= 9106.92

Each Year return is 11% and annual expense is 0.9% i.e Net we earn 10.1% pa

Value of invested fund after 40 years

FV= PV(1+R)^n= 9106.92 (1+10.1%)^40 = 427,429.29

Net Money received by investor = Fund Value - Backend load

= 427429.29 (1-1.1%) = 422727.56