Question
Understanding the Costs Involved in Mutual Fund Investments Larry is debating purchasing a mutual fund, but he has some questions for his financial advisor, Megan.
Understanding the Costs Involved in Mutual Fund Investments Larry is debating purchasing a mutual fund, but he has some questions for his financial advisor, Megan. The following table presents information on four different open-end mutual funds that Larry and Megan are discussing.
Use the information in the table to answer the questions that follow.
FUND | NAV | NET CHG | YTD % RET |
---|---|---|---|
GlbEx p | 13.32 | -0.04 | 2.8 |
TmRE r | 29.77 | 0.06 | 5.7 |
PFIN | 37.81 | 0.20 | 8.2 |
TopLA | 38.21 | 0.29 | 9.3 |
LARRY: After some research, Ive narrowed it down to these four funds, but can you explain to me the relationship between 12b-1 fees and fund performance?
MEGAN: Generally, funds that charge 12b-1 fees, such as GlbEx p, ?(do not necessarily OR always) ? outperform funds that do not charge these fees.
LARRY: What about front-end load fees? For example, suppose TopLA has a front-end load fee of 6%, when do I pay this fee?
MEGAN: 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.
LARRY: It sounds like these fees could start to add up. Whats the most I can expect to pay in fees?
MEGAN: If a fund charges a 4% front-end load and a 2.5% 12b1 fee, then it can charge a maximum of only (%?) in back-end load charges without violating the cap.
LARRY: Thanks! This was really helpful. So it sounds like youd recommend looking for(low load? no load? back end load? front end load?) funds whenever possible.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started