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Question 1196901: Mr Swierkos invested $25000 in a mutual fund.
If his broker deducted a 6% commission before turning rest of the money over to mutual fund, and value of each share increased by 18% during the year.
Determine what percentage return on his investment did Mr Swierkos realize at the end of the first year
Answer by Theo(13342)   (Show Source):
You can put this solution on YOUR website! he put 25000 in his account at the beginning of the year.
the broker took out 6% = 1500.
the remaining balance in the account at the beginning of the year was 23500.
that was invested in the mutual fund, earning 18%.
the remaining balance in the account at the end of the year was 23500 * 1.18 = 27730.
his net profit was 27730 minus 25000 = 2730.
2730 / 25000 = .1092 = 10.92%.
if you look at the total transaction for the year, it is equivalent to:
25000 * .94 * 1.18 = 25000 * 1.1092 = 27730.
if he leaves the money in the account and the broker charges 6% each year and the mutual fund earns 18% each year, then the remaining balance in each succeeding year is equal to the remaining balance from the previous year * .94 * 1.18 = the remaining balance from the previous year * 1.1092.
subtract 1 from that to get .1092 and multiply it by 100 to get 10.92% per year.
at the end of the second year, he would have 27730 * 1.1092 = 30758.116.
at the end of the third year he would have 30758.116 * 1.1092 = 34116.90227.
this would continue for as long as the money remaining the account and the broker took 6% at the beginning of each year and the mutual fund earned 18% by the end of each year.
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