Question

Loaded-Up Fund charges a 12b-1 fee of 1% and maintains an expense ratio of 0.90%. Economy Fund charges a front-end load of 2%, but has no 12b-1 fee and an expense ratio of 0.10%. Assume the rate of return on both funds’ portfolios (before any fees) is 8% per year.

a. How much will an investment of $100 in each fund grow to after 1 year? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Loaded-Up Fund $ 108.10 Economy Fund $
b. How much will an investment of $100 in each fund grow to after 5 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Loaded-Up Fund $ Economy Fund $
c. How much will an investment of $100 in each fund grow to after 8 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Loaded-Up Fund $ Economy Fund $

Answer 1

An investment of $100 in Loaded-Up Fund will grow to $108.10 after 1 year, while an investment of $100 in Economy Fund will grow to $106.90.

Step-by-step explanation:

To find out how much an investment of $100 in each fund will grow to after 1 year, we need to calculate the returns for both funds. For Loaded-Up Fund, we can calculate the return by multiplying the initial investment by the rate of return and then subtracting the 12b-1 fee and the expense ratio. So, for Loaded-Up Fund:

$100 * (1 + 0.08) - ($100 * 0.01) - ($100 * 0.009) = $100 * 1.08 - $1 - $0.90 = $108.10.

For Economy Fund, we can calculate the return by multiplying the initial investment by the rate of return and then subtracting the front-end load and the expense ratio. So, for Economy Fund:

$100 * (1 + 0.08) - ($100 * 0.02) - ($100 * 0.001) = $100 * 1.08 - $2 - $0.10 = $106.90.

After 1 year, an investment of $100 in Loaded-Up Fund will grow to $108.10 and an investment of $100 in Economy Fund will grow to $106.90.