Question

The following information pertains to the Big Returns Fund:

Cost	Class "A"	Class "B"	Class "C"
Front-end load	5.57	0.00	0.00
Back-end load	0.00	5.34	0.89
		Declining 1% per year	First year only
Management fee	0.80	0.80	0.80
12b-1 fee	0.30	0.60	0.80

For each share class, calculate (1) how much you would pay in initial commissions, (2) how much you would pay in back-end commissions if you sold after two years, (3) how much in value is lost to annual expenses over a two-year holding period. Assume you purchased $1,500 worth of shares in this fund, and that prior to reductions for management and 12b-1 fees the gross fund return was 9.00 percent each year.

1. The initial commissions for Class "A" is $____. (Round to the nearest cent.)

The back-end commission for Class "A" is $____. (Round to the nearest cent.)

The total value lost to annual fees and expenses for Class "A" over the two-year holding period is $____. (Round to the nearest cent.)

2. The initial commissions for Class "B" is $____. (Round to the nearest cent.)

The back-end commission for Class "B" is $____. (Round to the nearest cent.)

The total value lost to annual fees and expenses for Class "B" over the two-year holding period is $____. (Round to the nearest cent.)

3. The initial commissions for Class "C" is $____. (Round to the nearest cent.)

The back-end commission for Class "C" is $___. (Round to the nearest cent.)

The total value lost to annual fees and expenses for Class "C" over the two-year holding period is $____. (Round to the nearest cent.)

Answer 1

1. The initial commissions for Class "A" is $83.55

The back-end commission for Class "A" is $0 (Zero)

Amount Invested in Fund = 1500 - 83.55 = 1416.45

First Year Return 9% , Value of investment after adjusting return = 1543.93

Management Fee = 0.8% (Annual)

12b-1 fee = 0.30%

Total Annual Fee = 0.8+0.3 = 1.1%  

Fee for first Year = 1.1% of 1543.93 = $16.98

Amount Remaining after one year = 1543.93 - 16.98 = $1526.95

Second Year Return 9% , Value of investment after adjusting return = 1664.38

Fee for Second Year = 1.1% of 1664.38 = 18.31

Total Fees for two Year (Management + 12b-1) = 16.98 + 18.31 = 35.29

The total value lost to annual fees and expenses for Class "A" over the two-year holding period is $35.29

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2. The initial commissions for Class "B" is $0 (Zero)

After one year, return 9% , Total value of investment = $1635

Management Fee = 0.8%.

12b-1 fee = 0.60%

Total Fee = 0.8+0.6 = 1.40%

Fee deducted after one Year = 1.40% of $1635 = $22.89

Investment Value after fee deduction = 1635 - 22.89 = $1612.11

After Second Year, with return of 9% = $1757.20

Fees for second year = 1.4% of 1757.20 = $24.60

Value of Investment at the end of two year = $1732.6

The back-end commission for Class "B" is $4.34% of 1732.6 = $75.20

The total value lost to annual fees and expenses for Class "B" over the two-year holding period is $47.49

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3. The initial commissions for Class "C" is $0 (Zero)

The back-end commission for Class "C" is $0 (Zero)

Management Fee = 0.8%.

12b-1 fee = 0.80%

Total Fee = 0.8+0.8 = 1.60%

After one year, return 9% , Total value of investment = $1635

Fee deduction after one year = 26.16

Value of Investment after deduction of fee = 1635-26.16 = $1608.84

After Second Year, with return of 9%= $1753.64

Fee deduction for second year = 1.6% of 1753.64 = 28.06

The total value lost to annual fees and expenses for Class "C" over the two-year holding period is $54.22