Question

Liza invests in an investment at the age of 35 and deposits 10000 in the investment fund. the fund is expected to earn an effective rate of 7.5% with an expense ratio of 1.5%. she will keep the deposit in the fund until age of 70 years old. determine the percentage reduction in the expected accumulated amount in the fund attributable to the expense ratio.

Answer 1

The first step is to find the value of the accumulated amount when Liza is 70 years old. The accumulated amount is found using future value of investment equation.

Fund expenses = 1.5 % 125688.70 = 0.015 125688.70

Fund expenses = 1885.33

Percentage reduction of accumulated amount due to expense ratio = 1885.33

answered by: anonymous