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Math Help - Mutual Fund Question

  1. #1
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    Joined
    Oct 2008
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    11

    Mutual Fund Question

    Question:
    You have $10,000 to invest which of the following will be your best investment vehicle?
    Mutual Fund A: 5% load, expenses 1.25% per year. ARR = 9%, you expect to hold your investment for 3 years.
    Mutual fund B: A no load fund with the following backend load.
    Hold for a year or less 4%
    Hold for two years or less 3%
    Hold for 3 years or less 2%
    Hold for less than 5 years 0.5%
    The fund is expected to return 11%, and annual expenses are 1.3%, you expect to hold your investment for 2 years.

    Answer:
    Mutual Fund A
    (0.95)(1.09^2)(0.9875^3) = 1.1847
    (1.1847^1/3) - 1 = 5.81%

    BUT
    Once again, I don't know how to solve for the back-end load. How do I figure out everything for Mutual Fund B?
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  2. #2
    Newbie
    Joined
    Dec 2008
    Posts
    1
    Hey Interesting question freakshow... clarify if you want to hold the investment for 3years or that period can be flexible..
    if the prior applies that eliminates your 2 options of holding investment less than 2 years and also which has larger percentage of load
    so if you are ready to hold just more than 3 years you applicable load is 0.5%
    ARR = 11% and exit load is 1.3%...

    ----------------------------------
    Abby Nelson
    merchant services
    Last edited by abbynelson28; December 6th 2008 at 10:37 AM.
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