Plz give the calculation of CLASS B in detail I m so confused with it thanks The
ID: 2735109 • Letter: P
Question
Plz give the calculation of CLASS B in detail I m so confused with it thanks
The Investments Fund sells Class A shares with a front-end load of 6 percent and Class B shares with other charges of .5 percent annually as well as backend load fees that start at 5 percent and fall by 1 percent for each full year the investor holds the portfolio (until the fifth year). Assume the portfolio rate of return net of operating expenses is 10 percent annually. If you plan to sell the fund after four years, are Class A or Class B shares the better choice for you? What if you plan to sell after 15 years?
Explanation / Answer
1.Plan to sell after four years :
Actual rate of return on Class A shares = 9.4 % (10-0.6)
Actual rate of retun on Class B shares = 9.70 % (10 - 0.3) --- (0.05*4+0.1)
So it is better to Purchase Class B shares if u plan to sell after 4 years.
2.Plan to sell after 15 years :
Actual rate of return on Class A shares = 9.4 % (10-0.6)
Actual rate of return on Class B shares = 9.25%(10 - 0.05*15)
If u plan to sell after 15 years it is better to select Class A