Question

Abaco Fund offers two classes of shares for investors. Class A shares charge a 12b-1 fee of 1% and maintains an expense ratio of 0.50%. Class B shares charge a front-end load of 2%, a 12b-1 fee of 0.25% and an expense ratio of 0.25%. Assume the rate of return on both funds’ portfolios (before any fees) is 7% per year and you intend to invest $10,000. How much will an investment in each class of Abaco’s shares grow to after 4 years?

Answer 1

To calculate the growth of an investment in each class of Abaco Fund shares after 4 years, use the compound interest formula. Class A shares have an expense ratio of 0.50% and a 12b-1 fee of 1%. Class B shares have an expense ratio of 0.25%, a 12b-1 fee of 0.25%, and a front-end load of 2%.

Step-by-step explanation:

To calculate how much an investment in each class of Abaco Fund shares will grow to after 4 years, we can use the compound interest formula. Class A shares have an expense ratio of 0.50% and a 12b-1 fee of 1%. Class B shares have an expense ratio of 0.25%, a 12b-1 fee of 0.25%, and a front-end load of 2%.

For Class A shares, after 4 years, the investment will grow to:

Amount = $10,000 * (1 + (0.07 - 0.50) - 0.01) ^ 4

For Class B shares, after 4 years, the investment will grow to:

Amount = $10,000 * (1 + (0.07 - 0.25) - 0.0025) ^ 4

Calculating these amounts will give you the final values for each class of shares.