Suppose an individual invests $29,000 in a load mutual fund for two years. The load fee entails an up-front commission charge of 3.3 percent of the amount invested and is deducted from the original funds invested. In addition, annual fund operating expenses (or 12b-1 fees) are 0.64 percent. The annual fees are charged on the average net asset value invested in the fund and are recorded at the end of each year. Investments in the fund return 9 percent each year paid on the last day of the year. If the investor reinvests the annual returns paid on the investment, calculate the annual return on the mutual funds over the two-year investment period. (Do not round intermediate calculations. Round your answer to 2 decimal places.(e.g., 32.16))
What is the annual report?
Initial investment by individual = $29,000
commission = 3.3%
Net amount invested by fund = 29,000x(1-3.3%) = 28,043
Funds after 1st year = 28,043 x (1+9%) =30,567
Charges = (28043+30,567)/2x(0.64%) = 188
Fund value after charges at the end of year 1 = 30567-188 = 30,379
Funds after 2nd year = 30,379 x (1+9%) =33,113
Charges = (30,379+33,113)/2x(0.64%) = 203
Fund value after charges at the end of year 2 = 33,113-203 = 32,910
Annual Return = (32,910/29,000)0.5 - 1 = 6.53% p.a.
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