Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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.

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. 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 grad 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 , but when you sell these shares you will 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 % in back-end load charges without violating the cap. 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.
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 grad 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
, but when you sell these shares you will
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
% in back-end load charges
without violating the cap.
BOB: Thanks! This was really helpful. So it sounds like you'd recommend looking for
funds whenever possible.
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fixed Income Securities Tools For Todays Markets

Authors: Bruce Tuckman, Angel Serrat

3rd Edition

0470891696, 978-0470891698

More Books

Students also viewed these Finance questions

Question

Discuss the objectives of discipline and appeals systems

Answered: 1 week ago