Question

# Suppose an individual invests \$32,000 in a load mutual fund for two years. The load fee...

Suppose an individual invests \$32,000 in a load mutual fund for two years. The load fee entails an up-front commission charge of 3.6 percent of the amount invested and is deducted from the original funds invested. In addition, annual fund operating expenses (or 12b-1 fees) are 0.67 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 7 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.

 Amount invested = \$32,000 Less; load @3.6% = \$1,152.0 Net amount invested = \$30,848 Amount after 1 year = 30848*1.07 = 33007 Operating exp. Year 1 = {(33007.36+30880)/2}*0.67% = 31943.68*0.67% = \$214.13 Net amount after year 1 including return = 33007.36-214.13 = 32793.23 Amount after year 2 = 32793.33*1.07 = 35088.86 Operating exp. Year 2 = {(35088.86+32793.23)/2}*0.67% = \$33940*0.67% = 227.398 Net amount after year 2 including = 35088.86-227.64 = 34861.22 Annual return for 2 years = (34861.22-32000)/(32000*2) = 0.0447 or 4.47%

#### Earn Coins

Coins can be redeemed for fabulous gifts.