Given the following fees and expected returns for fund X and assuming an initial investment of $1000, calculate the value of the investment at the end of five years.

Question

Quizplus · Accepted Answer

Using the formula for compound interest: 
A = P * (1 + r/n)^(nt)
where A is the end value, P is the principal (initial investment), r is the annual interest rate, n is the number of times the interest is compounded per year, and t is the number of years.

For Fund X:
- Annual fee: 1.5%
- Expected return: 7.5%

After deducting the annual fee, the effective annual rate of return is:
7.5% - 1.5% = 6%

Assuming the interest is compounded annually:
A = 1000 * (1 + 0.06)^5
A = $1550.77

Therefore, the best choice is B, with an end value of $1550.77.

Given the Following Fees and Expected Returns for Fund X