You have $10,000 to invest and you are considering investing in a fund. The fund charges a front-end load of 5.75 percent and an annual expense fee of 1.25 percent of the average asset value over the year. You believe the fund's gross rate of return will be 11 percent per year. If you make the investment,what should your investment be worth in one year?

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Quizplus · Accepted Answer

The initial investment will be reduced by the front-end load of 5.75%, leaving $9,425 ($10,000 x (1-0.0575)). The annual expense fee will be 1.25% of the average asset value, which is ($9,425 + $10,882)/2 = $10,153.50. Therefore, the annual expense fee will be $127.02 ($10,153.50 x 0.0125). The net rate of return will be 11% - 1.25% = 9.75%. The investment will be worth $10,337.46 at the end of the year ($9,425 x 1.0975 + $127.02).

You Have $10,000 to Invest and You Are Considering Investing