You have $12,500 to invest and you are considering investing in Fund X. The fund charges a front-end load of 3 percent and an annual expense fee of 2.25 percent of the ending asset value over the year. You believe the fund's gross rate of return will be 8 percent per year. If you make the investment,what should your investment be worth in one year?

Question

Quizplus · Accepted Answer

The correct answer is D.The front-end load is 3% of $12,500, which is $375. This leaves $12,125 to be invested. The gross rate of return is 8%, so the ending asset value after one year is $12,125 * 1.08 = $13,095. The annual expense fee is 2.25% of $13,095, which is $294.64. This leaves $13,095 - $294.64 = $12,800.36.

You Have $12,500 to Invest and You Are Considering Investing