The back-end load for Kitty's mutual funds if she sells during the third year is $242.50.
Using the following values:
Initial back-end load (BL) = 5%
Annual decrease in BL = 1%
Years passed (t) = 3
Purchase amount = $5,000
To calculate the decrease in BL over the years:
Decrease in BL per year = BL * Decrease rate = 5% * 1% = 0.05%
To calculate the total decrease in BL over 3 years:
Total decrease = Decrease per year * Number of years = 0.05% * 3 = 0.15%
To calculate the remaining BL after the decrease:
Remaining BL = Initial BL - Total decrease = 5% - 0.15% = 4.85%
To calculate the back-end load on the purchase amount:
Back-end load = Remaining BL * Purchase amount = 4.85% * $5,000 = $242.50
Therefore, the back-end load for Kitty's mutual funds if she sells during the third year is $242.50.