Question

The Bruin Stock Fund sells Class A shares that have a front-end load of 4.8 percent, a 12b-1 fee of 0.42 percent, and other fees of 1.3 percent. There are also Class B shares with a 5 percent CDSC that declines 1 percent per year, a 12b-1 fee of 1.95 percent, and other fees of 1.3 percent. Assume the portfolio return is 11 percent per year. What is the value of $1 invested in each share class if your investment horizon is 3 years? Class A $ Class B $ What if your investment horizon is 20 years?

Answer 1

Part 1 :

The total investment for,

Class A = $1.24

Class B = $ 1.23

Part 2:

The total investment for,

Class A = $ 5.62

Class B = $ 4.45

Explanation:

The amount of investment Net of Front end Load,

`= 1 - 0.048`

`= $0.952`

Part 1:

If the investment horizon is 3 years, the value of $1 invested in each share class for Class A become,

`= (0.952)(1 + 0.11 - 0.0042 - 0.013)^(3)`

`= $1.24`

The value of $1 invested in each share class for Class A is $1.24.

If the investment horizon is 3 years, the value of $1 invested in each share class for Class B become,

`= ((1)(1 + 0.11 - 0.0195 - 0.013)^(3) )(1-0.02)`

`= $1.23`

The value of $1 invested in each share class for Class B is $1.23.

Part 2:

If the investment horizon is 20 years, the value of $1 invested in each share class for Class A become,

`= (0.952)(1 + 0.11 - 0.0042 - 0.013)^(20)`

`= 5.62`

The value of $1 invested in each share class for Class A is $5.62.

If the investment horizon is 20 years, the value of $1 invested in each share class for Class B become,

`= (1)(1 + 0.11 - 0.0195 - 0.013)^(20)`

`= $4.45`

The value of $1 invested in each share class for Class B is $4.45.

Answer 2

Explanation:

Investment Amount Net of Front end Load (1 - 0.048) = $0.952

The value of $1 invested in each share class if investment horizon is 3 years

• After 3 years: (For every dollar invested)

• Class A: 0.952 x (1+0.11-0.0042-0.013)^3 = $1.24

• Class B: (1 x (1+0.11-0.0195-0.013)^3) x (1-0.02) = $1.23

SIMILARLY,

The value of $1 invested in each share class if investment horizon is 20 years

• After 20 years: (For every dollar invested)

• Class A: 0.952 x (1+0.11-0.0042-0.013)^20 = $5.62

• Class B: 1 x (1+0.11-0.0195-0.013)^20 = $4.45