Compare a fund that charges a 0.25% annual fee with a fund that charges a 1.25% annual fee. If an investment of $5,000 earns an average return of 8% over the course of 5 years, approximately how much more will fees over those 5 years be for the higher-fee fund?
A) $4
B) $20
C) $330
D) $2,000

Question

Quizplus · Accepted Answer

For the fund that charges a 0.25% annual fee, the fee over 5 years would be:

$5,000 x 0.0025 x 5 = $62.50

For the fund that charges a 1.25% annual fee, the fee over 5 years would be:

$5,000 x 0.0125 x 5 = $312.50

The difference between the two fees is $312.50 - $62.50 = $250.

Therefore, the higher-fee fund would cost approximately $250 more over the 5-year period.

The closest option to this amount is option C, $330, so that is the best choice.

Compare a Fund That Charges a 0