Answer :
Answer:
The responses to the given choices can be defined as follows:
Explanation:
Assume is the investment. Each original Class A investment is of the net-front unburden. The portfolio will be worth four years from now:
[tex]\$1,000 \times 5\% = \$50 =\$1,000 - \$50 = \$950\\\\ \$950 (1 + 0.13)^4 = \$950 (1.13)^4 = \$950 (1.630474) = \$1,548.95\\\\[/tex]
You will place the total of [tex]\$1,000[/tex] on class B shares, but only [tex]12b-1[/tex]will be paid [tex](13-0.75 = 12.25)[/tex] at a rate of [tex]12.25\%[/tex] and you'll pay a [tex]1\%[/tex]back-end load charge if you sell for a four-year period.
After 4 years, your portfolio worth would be:
[tex]\$1,000 (1 + 0.1225)^4 = \$1,437.66 \\\\ \$1,000 (1.1225)^4 = \$1000 (1.587616) = \$ 1,587.62[/tex]
Their portfolio worth would be: after charging the backend load fee:
[tex]\$1,587.616 \times 0.99 = \$1,571.74 \\\\ Amounts \\\\ Class A \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1,548.95\\\\ Class B \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1,571.74 \\\\[/tex]
When the horizon is four years, class B shares are also the best option.
Class A shares would value from a 12-year time frame:
[tex]\$950 (1.13)^{12} = \$950 (4.334523) = \$4,117.80 \\\\[/tex]
In this case, no back-end load is required for Class B securities as the horizon is larger than 5 years.
Its value of the class B shares, therefore, is as follows:
[tex]\$1,000 (1.1225) 12 = \$1,000 (4.001623) = \$4,001.62 \\\\Amounts \\\\\ Class A \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 4,117.80\\\\ Class B \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 4,001.62\\\\[/tex]
Class B shares aren't any longer a valid option in this, prolonged duration. Its impact on class B fees of [tex]0.75\%\ \ 12b-1[/tex]cumulates over a period and eventually outweighs the [tex]5\%[/tex] the burden of class A shareholders.