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Week 2 Seminar Solutions

 







 


 
 




   

 





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Suppose you have $1000 to invest.
a) Class A funds -ill leave you -ith an initial investment of $940 net of the front-end load.
After 4 years, at 10% return your portfolio -ill be -orth:
940 (1.10)4 = $1,376.25
b) Class B shares allo- you to invest the full $1,000, but your investment performance net of
12b-1 fees -ill be only 9.5%, and you -ill pay a 1% exit fee if you sell after 4 years.
Your portfolio value after 4 years -ill be:
$1000 (1.095)4 = $1,437.66,
-hich after paying the exit fee -ill leave you -ith: $1,437.66 X.99 = $1,423.28.
Class B is better if your horizon is 4 years.
c) With a 15-year horizon, the Class A portfolio -ill be -orth:
$940 X (1.10)15 = $3,926.61
d) The Class B portfolio -ill be -orth (there is no exit fee in this case since the horizon is greater
than 5 years):
$1000 X (1.095)15 = $3,901.32
At this longer horizon, Class B is no longer the better choice. The effect of Class B's .5% 12b-1
fees accumulates over time and finally over-helms the 6% load charged to Class A investors.

 






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Stock
A
B
C
D
E
F
G
H
I
J
K
L
M
Total
Cash
Expenses

ear 1
Market
ear 2
Market
No of shares Price ($) Value
No of shares Price ($) Value
100,000.0
45.25
4,525,000
100,000
48.75
4,875,000
225,000.0
25.38
5,710,500
225,000
24.75
5,568,750
375,000.0
14.50
5,437,500
375,000
12.38
4,642,500
115,000.0
87.13 10,019,950
115,000
98.50 11,327,500
154,000.0
56.50
8,701,000
154,000
62.50
9,625,000
175,000.0
63.00 11,025,000
175,000
77.00 13,475,000
212,000.0
32.00
6,784,000
212,000
38.63
8,189,560
275,000.0
15.25
4,193,750
275,000
8.75
2,406,250
450,000.0
9.63
4,333,500
450,000
27.45 12,352,500
90,000.0
71.25
6,412,500
90,000
75.38
6,784,200
87,000.0
42.13
3,665,310
87,000
49.63
4,317,810
137,000.0
19.88
2,723,560
0
27.88
0
0.0
17.75
0
150,000
19.75
2,962,500
2,395,000
73,531,570
2,408,000
86,526,570
3,542,000
2,873,000
730,000

830,000

ocus fund

Year 2

Stock

Market

No of shares

Price ($)

% -t

Value of shares liquidated

Number liquidated

Value

100,000

48.75

4,875,000

5.63

297,592

6104

225,000

24.75

5,568,750

6.44

339,942

13735

375,000

12.38

4,642,500

5.37

283,399

22892

115,000

98.50

11,327,500

13.09

691,482

7020

154,000

62.50

9,625,000

11.12

587,553

9401

175,000

77.00

13,475,000

15.57

822,575

10683

212,000

38.63

8,189,560

9.46

499,928

12941

275,000

8.75

2,406,250

2.78

146,888

16787

450,000

27.45

12,352,500

14.28

754,052

27470

90,000

75.38

6,784,200

7.84

414,138

5494

87,000

49.63

4,317,810

4.99

263,579

5311

27.88

0.00

150,000

19.75

2,962,500

3.42

180,844

9157

86,526,570

100

5,281,971

Total

2,408,000

   
   

  

  

     

 
  



 
    
  

  

       
  



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