EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Question
Chapter 4, Problem 21PS
Summary Introduction
To introduction: Shares are the financial instrument which is issued by the company to the general public for raising fund. Shares are the small unit of the ownership interest in an organization.
To identify: Which shares is better to sell after 4 years.
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The Investments Fund sells Class A shares with a front-end load of 6% and Class B shares with 12b-1 fees of .5% annually as well as back-end load fees that start at 5% and fall by 1% for each full year the investor holds the portfolio (until the fifth year). Assume the portfolio rate of return net of operating expenses is 10% annually. If you plan to sell the fund after 4 years, are Class A or Class B shares the better choice for you? What if you plan to sell after 15 years?
The Investments Fund sells Class A shares with a front-end load of 5% and Class B shares with 12b-1 fees of 1% annually as well as back-end load fees that start at 5% and fall by 1% (percentage point) for each full year the investor holds the portfolio (until the fifth year). Assume that you have $1,000 to invest and the portfolio rate of return net of operating expenses is 12% annually. a. If you invest in each fund and sell after 4 years, how much will you receive from each sale?
b. If you invest in each fund and sell after 10 years, how much will you receive from each sale?
The Investments Fund sells Class A shares with a front-end load of 5% and Class B shares with 12b-1 fees of 0.5% annually as well as back-end load fees that start at 5% and fall by 1% (percentage point) for each full year the investor holds the portfolio (until the fifth year). Assume that you have $1,000 to invest and the portfolio rate of return net of operating expenses is 13% annually.a. If you invest in each fund and sell after 4 years, are Class A or Class B shares the better choice for you?
Class A
Class B
b. If you invest in each fund and sell after 12 years, are Class A or Class B shares the better choice for you?
Class A
Class B
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