Question

you invested $2000 in a mutual fund with a front- end load of 5.75% at the beginning of 2005. If the securities in which the fund invested increased in value by 11% and 5%, respectively for 2005 and 2006. the fund's expense ratio was constant at 1.25%. what is your total return if you sold your shares of the fund at the end of 2006?

Answer 1

Invested amount=$2000

Front end load=5.75%

Actual invested amount=2000*(1-5.75%)=$1885

In 2005, the amount increases by 11%, then the value becomes=$1885*(1+11%)=$2092.35

The expense ratio=1.25%

Then the value becomes after deducting the expense ratio=$2092.35*(1-1.25%)=$2066.20

In 2006, the value increases by 5%, then the value becomes=$2066.20*(1+5%)=$2169.51

2006 end value after deducting expense ratio=$2169.51*(1-1.25%)=$2142.39

The value at the end of 2006=$2142.39