Louie is an ASSCAT student who desires to establish a long-term fund with P200,000 that his grandmother gifted to him. He intends to invest the money in a mutual fund that earns an expected 5% per year on his account. The sales agent advices him of the existing two choices; Class A and Class B accounts. For Class A account, there is a 5% up-front commission (payable now) on a which every year thereafter then charges a 0.61% management fee. For Class B account which has no up-front commission, but its management fee is 2.35% in year one, 0.34% in year two, and 1.37% per year thereafter. Set up a spreadsheet to determine how many years are required before the worth of the Class A account overtakes (is preferred to) the Class B account.
Spreadsheet exercise
Louie is an ASSCAT student who desires to establish a long-term fund with P200,000 that his grandmother gifted to him. He intends to invest the money in a mutual fund that earns an expected 5% per year on his account.
The sales agent advices him of the existing two choices; Class A and Class B accounts. For Class A account, there is a 5% up-front commission (payable now) on a which every year thereafter then charges a 0.61% management fee.
For Class B account which has no up-front commission, but its management fee is 2.35% in year one, 0.34% in year two, and 1.37% per year thereafter.
Set up a spreadsheet to determine how many years are required before the worth of the Class A account overtakes (is preferred to) the Class B account.
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