2. An open-end fund has a net asset value of $12 per share. It is sold with a front-end load(fee) of 5%. (Take a look at Slides 7, 20, and 22 "Fund C") a. For a no-load fund, the fund share price = b. What fraction of the dollar goes towards the purchase of shares given the front-end load? c. What is the share's offering price? (It may help to think about how much you have to pay so that the offering price will have the same purchasing power as the NAV of $12.) 4.2 Types of Investment Companies: Managed: Open vs. Closed . Open-end fund Fund share price = net asset value. "Cash out" by selling shares back to the fund at NAV. Closed-end fund Share may not be redeemed (but can be sold to other investors) Since shares in CEF are acquired in secondary markets, prices of shares differ from underlying NAV.: shares are traded at a premium or a discount from the NAV. > 4.4 Costs of Investing in Mutual Funds HERE NAV and Effective Load Cost to initially purchase one share of load fund = NAV + Front-end load (%) (if any) Stated loads typically range from 0 to 8.5% Load is designed to offset marketing expenses Goes to broker who sells fund to investor Effective load greater than stated load 4.4 Costs of Investing in Mutual Funds Fees and Mutual Fund Returns Soft dollars: Value of research services brokerage house provides "free of charge" in exchange for business NAV, -NAV, + Income+Capital gains distribution Rate of return= NAV Table 4.2 Costs on Investment Performance: Example Cumulative Proceeds (all dividends reinvested) Fund A Fund B Fund C Initial investment $10,000 $10,000 $ 9,400 5 years 15,923 15,211 14,596 10 years 25,354 23.136 22,665 15 years 40,371 35,192 35,194 20 years 64.282 53,529 54,649 Notes: Fund A is no load with 0.25% expense ratio, Fund B is no load with 1.25% total expense ratio, and Fund C has a 6% load on purchases and a 0.8% expense ratio. Gross return on all funds is 10% per