Mutual funds can effectively charge sales fees in one of three ways: front-end load fees, 12b-1 (annual) fees, or deferred (back-end) load fees. Assume that the SAS Fund offers its investors the choice of the following sales fee arrangements: (1) a 3 percent front-end load, (2) a 0.50 percent annual deduction, or (3) a 2 percent back-end load, paid at the liquidation of the investor's position. Also, assume that SAS Fund averages NAV growth of 12 percent per year. If you start with $100,000 in investment capital, calculate what an investment in SAS would be worth in three years under each of the proposed sales fee schemes. Which scheme would you choose? If your investment horizon were 10 years, would your answer in part (a) change? Demonstrate.

Mutual funds can effectively charge sales fees in one of three ways: front-end load fees, 12b-1 (annual) fees, or deferred (back-end) load fees. Assume that the SAS Fund offers its investors the choice of the following sales fee arrangements: (1) a 3 percent front-end load, (2) a 0.50 percent annual deduction, or (3) a 2 percent back-end load, paid at the liquidation of the investor's position. Also, assume that SAS Fund averages NAV growth of 12 percent per year. If you start with $100,000 in investment capital, calculate what an investment in SAS would be worth in three years under each of the proposed sales fee schemes. Which scheme would you choose? If your investment horizon were 10 years, would your answer in part (a) change? Demonstrate.

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter13: Investing In Mutual Funds, Etfs, And Real Estate

Section: Chapter Questions

Problem 2FPE

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Mutual funds can effectively charge sales fees in one of three ways: front-end load fees, 12b-1 (i.e., annual) fees, or deferred (i.e., back-end) load fees. Assume that the SAS Fund offers its investors the choice of the following sales fee arrangements: (1) a 4% front-end load, (2) a 0.50% annual deduction, or (3) a 2% back-end load, paid at the liquidation of the investor's position. Also, assume that SAS Fund averages NAV growth of 11% per year. If you start with $100,000 in investment capital, calculate what an investment in SAS would be worth in three years under each of the proposed sales fee schemes. Which scheme would you choose? Do not round intermediate calculations. Round your answers to the nearest cent. Scheme 1: Scheme 2: Scheme 3: Choose: If your investment horizon were 10 years, would your answer in Part a change? Do not round intermediate calculations. Round your answers to the nearest cent. Scheme 1: Scheme 2: Scheme 3: Choose:
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