Understanding the Costs Involved in Mutual Fund Investments Bob is debating purchasing a mutual fund, but he has some questions for his financial advisor, Cho. The following table presents information on four different open-end mutual funds that Bob and Cho are discussing. Use the information in the table to answer the questions that follow. FUND NAV NET CHG YTD % RET MinT p 12.32 -0.04 2.6 TmRE r 15.77 0.06 5.5 PFIN 39.81 0.20 8.0 BRRT 43.21 0.29 9.1 BOB: After some research, I've narrowed it down to these four funds, but can you explain to me the relationship between 12b-1 fees and fund performance? CHO: Generally, funds that charge 12b-1 fees, such as MinT p, do not necessarily outperform funds that do not charge these fees. BOB: What about front-end load fees? For example, suppose BRRT has a front-end load fee of 6%, when do I pay this fee? CHO: If you purchase 100 shares of this fund at the NAV, you will pay a commission of S pay $ in front-end fees. BOB: It sounds like these fees could start to add up. What's the most I can expect to pay in fees? CHO: If a fund charges a 4% front-end load and a 4% 12-b1 fee, then it can charge a maximum of only without violating the cap. but when you sell these shares you will % in back-end load charges BOB: Thanks! This was really helpful. So it sounds like you'd recommend looking for funds whenever possible.
Understanding the Costs Involved in Mutual Fund Investments Bob is debating purchasing a mutual fund, but he has some questions for his financial advisor, Cho. The following table presents information on four different open-end mutual funds that Bob and Cho are discussing. Use the information in the table to answer the questions that follow. FUND NAV NET CHG YTD % RET MinT p 12.32 -0.04 2.6 TmRE r 15.77 0.06 5.5 PFIN 39.81 0.20 8.0 BRRT 43.21 0.29 9.1 BOB: After some research, I've narrowed it down to these four funds, but can you explain to me the relationship between 12b-1 fees and fund performance? CHO: Generally, funds that charge 12b-1 fees, such as MinT p, do not necessarily outperform funds that do not charge these fees. BOB: What about front-end load fees? For example, suppose BRRT has a front-end load fee of 6%, when do I pay this fee? CHO: If you purchase 100 shares of this fund at the NAV, you will pay a commission of S pay $ in front-end fees. BOB: It sounds like these fees could start to add up. What's the most I can expect to pay in fees? CHO: If a fund charges a 4% front-end load and a 4% 12-b1 fee, then it can charge a maximum of only without violating the cap. but when you sell these shares you will % in back-end load charges BOB: Thanks! This was really helpful. So it sounds like you'd recommend looking for funds whenever possible.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:Understanding the Costs Involved in Mutual Fund Investments
Bob is debating purchasing a mutual fund, but he has some questions for his financial advisor, Cho. The following table presents information on four
different open-end mutual funds that Bob and Cho are discussing. Use the information in the table to answer the questions that follow.
FUND
NAV
NET CHG YTD % RET
MinT p
12.32
-0.04
2.6
TmRE r 15.77
0.06
5.5
PFIN
39.81
0.20
8.0
BRRT
43.21
0.29
9.1
BOB: After some research, I've narrowed it down to these four funds, but can you explain to me the relationship between 12b-1 fees and fund
performance?
CHO: Generally, funds that charge 12b-1 fees, such as MinT p, do not necessarily
outperform funds that do not charge these fees.
BOB: What about front-end load fees? For example, suppose BRRT has a front-end load fee of 6%, when do I pay this fee?
CHO: If you purchase 100 shares of this fund at the NAV, you will pay a commission of S
pay $
in front-end fees.
BOB: It sounds like these fees could start to add up. What's the most I can expect to pay in fees?
CHO: If a fund charges a 4% front-end load and a 4% 12-b1 fee, then it can charge a maximum of only
without violating the cap.
but when you sell these shares you will
% in back-end load charges
BOB: Thanks! This was really helpful. So it sounds like you'd recommend looking for
funds whenever possible.
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