Question

You have $16,000 to invest in a mutual fund with a nav = $45. you choose a fund with a 4 percent front load, a 1 percent management fee, and a 0.25 percent 12b-1 fee. assume that the management and 12b-1 fees are charged on year-end assets. the gross annual return on the fund's shares was 9 percent. what was your net annual rate of return to the nearest basis point?

Answer 1

First we have to calculate funds available after all charges: Front load is charges at the beginning of the investment a) Front load 4% = $16,000 (1- 0.04) = $15,360 (net amount available for investment) b) Interest earned 9% on net investment, then our gross investment earnings will be: $15,360(1.09) = $16,742.40 Now, we have to calculate the charges on year-end assets (i.e. $16,742.40): c) 1% management fee and 12b-1 fee 0.25%= 1+0.25 = 1.025% So, our net investment earnings after these charges on year-end assets: $16,742.40(1-0.0125) = $16,533.12 (Net Income) Net annual rate of return ($16,533.12/$16,000)-1 = 3.33%