Suppose you consider investing $15,000 in a load fund from which a fee of 5 percent is deducted and you expect the fund to earn 12 percent over the next year. Alternatively, you could invest in a no-load fund that is expected to earn 10 percent and which takes a 1/2 percent redemption fee. Which is better and by how much?

Question

Quizplus · Accepted Answer

For the load fund, the initial investment after the fee is deducted is:

$15,000 - (0.05 x $15,000) = $14,250

After one year, the fund earns 12%, so its value is:

$14,250 x 1.12 = $15,930

For the no-load fund, the initial investment is $15,000, but there is a redemption fee of 0.5%, so the value after one year is:

$15,000 x (1 + 0.10 - 0.005) = $16,042.50

The difference in returns between the two funds is:

$16,042.50 - $15,930 = $112.50

Therefore, the no-load fund is the better choice, as it has a higher return by $112.50.

Suppose You Consider Investing $15,000 in a Load Fund from Which