The Wildwood Fund sells Class A shares with a front-end load of 5% and Class B shares with a 12b-1 fee of 1% annually. If you plan to sell the fund after 4 years, are Class A or Class B shares the better choice? Assume a 10% annual return net of expenses before the 12b-1 fee is applied.

Question

Quizplus · Accepted Answer

Assume $100 is invested. Class A: Investment after load = $100 - .05($100) = $95 After four years = $95(1.10⁴) = $95 × 1.4641 = $139.09 Class B: Rate of return after 12b-1 fee = 10% - 1% = 9% After four years = $100(1.09⁴) = $100 × 1.4116 = $141.16 Class B is the better choice.

The Wildwood Fund Sells Class a Shares with a Front-End