Question

You have $10,000 to invest and are considering two mutual funds: No-load Fund and Economy Fund. The No-load Fund charges a 12b-1 fee of 1% and maintains an expense ratio of 0.50%. The Economy Fund charges a front-end load of 4%, but has no 12b-1 fee and an expense ratio of 0.50%. Assume that the rate of return on both funds’ portfolios (before any fees) is 8% per year.

- If you plan to buy and hold for three years, which one should you invest? Please explain.

- If you plan to buy and hold for ten years, which one should you invest? Please explain.

Answer #1

Answer :- 12b-1 is an annual marketing expense of an mutual fund it is considered as an operating expense of a mutual fund whereas front endoad is the fee paid for investing in mutual fund.

Situation 1:- If you plan to buy and hold for three years.

No-load fund :- The total cost of holding investment is 3%

Economy fund :- The total cost of holding investment is 4%

And 0.50% expense ratio is for both the funds which means that No load fund is better to invest.

Situation 2 :- If you plan to buy and hold for ten years.

No load fund = Total cost = 10%

Economy fund = Total cost = 4%

And 0.50% expense ratio for both the funds which means Economy fund is better to invest.

Loaded-Up Fund charges a 12b-1 fee of 1.00% and maintains an
expense ratio of 0.50%. Economy Fund charges a front-end load of
3.0%, but has no 12b-1 fee and an expense ratio of 0.25%. Assume
the rate of return on both funds’ portfolios (before any fees) is
12% per year.
How much will an investment of $1,000 in each fund grow to
after:
1 year
3 years
10 years

Loaded-Up Fund charges a 12b-1 fee of 0.75% and maintains an
expense ratio of 0.50%. Economy Fund charges a front-end load of
3.0%, but has no 12b-1 fee and an expense ratio of 0.25%. Assume
the rate of return on both funds’ portfolios (before any fees) is
10% per year.
How much will an investment of $1,000 in each fund grow to
after: (Round your answers to 2 decimal
places.)
ONLY NEED ANSWERS OF ECONOMY FUND PART B AND C...

Loaded-Up Fund charges a 12b-1 fee of 1.00% and maintains an
expense ratio of 0.75%. Economy Fund charges a front-end load of
2.0%, but has no 12b-1 fee and an expense ratio of 0.25%. Assume
the rate of return on both funds’ portfolios (before any fees) is
9% per year.
How much will an investment of $1,000 in each fund grow to
after: (Round your answers to 2 decimal
places.)
year 1 Loaded up fund Economy Fund
year 3
uear10

You are considering an investment in a mutual fund with a 4%
load and an expense ratio of 0.5%. You can invest instead in a bank
CD paying 6% interest.
a. If you plan to invest for two years, what annual rate of return
must the fund portfolio earn for you to be better off in the fund
than in the CD? Assume annual compounding of returns.
b. How does your answer change if you plan to invest for six...

Loaded-Up Fund charges a 12b-1 fee of 0.75% and maintains an
expense ratio of 0.75%. Economy Fund charges a front-end load of
2.5%, but has no 12b-1 fee and an expense ratio of 0.25%. Assume
the rate of return on both funds’ portfolios (before any fees) is
7% per year.
How much will an investment of $1,000 in each fund grow to
after: (Round your answers to 2 decimal
places.)
1 year? Loaded Up Fund Economy Fund
3 year? Loaded...

1. You plan to invest $20,000 into a mutual fund with 1.5%
front-end load, 1.5% back-end load, 0.75% management fee and 0.23%
12b-1 fees. How much money will be invested into the fund after
taking all necessary fees into account?
• 19,760 • 19,700 • 19,850 • 19,946
2. Continue with your answer from question 1. How much will you
pay in management fees this year if the fee is 0.75%?
• $126.1 • $197.6 • $147.8 • $98.8

You are considering an investment in a mutual fund with a 4%
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Now suppose that instead of a front-end load the fund assesses a
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You are considering an investment in a mutual fund with a 4%
load and an expense ratio of 0.5%. You can invest instead in a bank
CD paying 6% interest.
a. If you plan to invest for two years, what
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better off in the fund than in the CD? Assume annual compounding of
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your answer to 2 decimal places.)
b....

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Assume the fund has the same...

You have invested in a particular mutual fund in the past. The
fund has a 2% front-end load and an expense ratio of 0.9%. The fund
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