Question

Yellow Hammer Fund has both class A and class B shares. Class A shares are offered with a 3% front-end load with no 12b-1 and a 0.25% annual management fee. Class B shares have no front-end load, a 0.50% 12b-1 fee and annual management fees of 0.75%. Assume that the fund generates an annual return of 6% before management expenses. After five years, how much would a $10,000 in Class A shares be worth? $11,698.59 $11,798.92 $12,828.43 $12,611.60

Answer 1

Return on Class B shares would be computed as follows -

Return = [ 1 + (Annual return - annual management fees - 12b-1 fee) ]ⁿ

where, n = no. of years

Value of shares in 5 years = $10,000 x [ 1 + (6% - 0.75% - 0.50%) ]⁵

or, Value of shares in 5 years = $10,000 x [ 1 + 4.75% ]⁵ = $12,611.60