Suppose you consider investing $1,000 in a load fund which charges a fee of 2 percent, and you expect the fund to earn 14 percent over the next year. Alternatively, you could invest in a no-load fund with similar risk that is expected to earn 9 percent and charges a 1/2 percent redemption fee. Which is better and by how much?

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Quizplus · Accepted Answer

The load fund will cost you 2% upfront, so you invest $980 ($1,000 - $20). It earns 14%, so it grows to $1,117.20 ($980 * 1.14). The no-load fund doesn't have an upfront fee, so you invest the full $1,000. It earns 9%, growing to $1,090. When you redeem, you pay a 0.5% fee, so you get $1,084.55 ($1,090 - $1,090 * 0.005). The difference is $32.65 ($1,117.20 - $1,084.55), making the load fund better by $32.65.

Suppose You Consider Investing $1,000 in a Load Fund Which