Suppose you consider investing $5,000 in a load fund from which a fee of 8 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: 
- 8% fee on $5,000 = $400 
- Expected return = 12% of $5,000 = $600 
- Net return = $600 - $400 = $200

For the no-load fund: 
- Redemption fee = 0.5% of $5,000 = $25 
- Expected return = 10% of $5,000 = $500 
- Net return = $500 - $25 = $475

Therefore, the no-load fund is a better option as it has a higher net return of $475 compared to the load fund's net return of $200.

Suppose You Consider Investing $5,000 in a Load Fund from Which