Final answer:
Mutual funds typically charge management fees of less than 2 percent of total assets per year to cover managerial and other expenses. The correct option for this question is a. management fees of less than 2 percent. Fees play a significant role in the long-term growth of investments, as illustrated by the comparison of earnings between Alexx, who invests directly, and Spenser, who goes through a retirement fund.
a. management fees of less than 2 percent of total assets per year is the correct option
Step-by-step explanation:
To cover managerial and other expenses, mutual funds typically charge management fees of less than 2 percent of total assets per year, rather than commissions of 8 to 10 percent on purchases or sales of securities, management fees of more than 10 percent of total assets per year, or a one-time load of 5 percent upon the initial investment in the mutual fund.
This fee is utilized to pay for the professional management and operational costs associated with the fund.
It is important to be aware of these fees when investing as they can affect overall returns. For example, suppose Alex and Spenser each invest $5,000 in the same stock. Alex, who invests directly, earns 5% a year, while Spenser, who uses a retirement fund, earns 4.75% after a 0.25% fee. After 30 years, Alex would have more money than Spenser due to the impact of the lower fee on compounding returns over time.
The correct option for the charges typically applied by mutual funds to cover managerial and other expenses is a. management fees of less than 2 percent of total assets per year.