Question

ABC Domestic Equity Fund sells two types of share, A+ and B+. A+ shares are sold with frontend load fee of 5% whilst Type B+ shares are not subject front-end load fee but are charged to investment management fee of 1% per annum as well as exit (back-end load) fee that start at 12% and reduce by 2% for each full year the investor holds the portfolio (until the 6th year). The annual rate of return for both types of share is 15%.

(a) Calculate the value of a Rs 25,000 investment made by investor Mr Paul Halp in Type A+ shares if the shares are disposed after (i) one year and (ii) 5 years. [ 8 Marks]

(b) Calculate the value of a Rs 25,000 investment made by investor Mrs Jacqueline Halp in Type B+ shares if the shares are disposed after (i) one year and (ii) 5 years. [14 Marks]

(c) As an analyst, which types of share will you recommend the investor to buy? [ 3 Marks]

Answer 1

From the above calculation it is evident that A+ shares are benficial to buy