Ask Question
5 April, 08:37

The Investments Fund sells Class A shares with a front-end load of 6% and Class B shares with 12b-1 fees of 1% annually as well as back-end load fees that start at 5% and fall by 1% for each full year the investor holds the portfolio (until the fifth year). Assume that you have $1,000 to invest and the portfolio rate of return net of operating expenses is 11% annually. a-1. If you invest in each fund and sell after 4 years, how much will you receive from each sale

+1
Answers (1)
  1. 5 April, 08:49
    0
    An amount of $1,457.35 from the sale of Class A, while $1,449.46 will be received from the sale of Class B.

    Explanation:

    For Class A shares

    Amount to receive from A sales = Invested amount * (1 + r) ^n * (1 - growth fluctuation difference)

    Where;

    r = Portfolio rate of return = 11%, or 0.11

    n = number of years = 4

    Therefore, we have:

    Amount to receive from Class A sale = $1,000 * (1 + 0.11) ^4 * (1 - (0.05 - 0.01)) = $1,457.35

    For Class B

    Amount to receive from Class B sale = Invested amount * (1 + f) ^n * (1 - falling rate)

    Where;

    f = r - annual fees = 0.11 - 0.01 = 0.10

    Therefore, we have:

    Amount to receive from Class B sale = $1,000 * (1 + 0.10) ^4 * (1 - 0.01) = $1,449.46

    Therefore, $1,457.35 from the sale of Class A, while $1,449.46 will be received from the sale of Class B.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “The Investments Fund sells Class A shares with a front-end load of 6% and Class B shares with 12b-1 fees of 1% annually as well as back-end ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers