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Series 7 practice questionhardPackaged Products — Mutual Funds

A client is considering investing $200,000 for 15 years. Which mutual fund share class would likely result in the lowest total cost?

  1. AClass A shares with a 4% front-end load and 0.25% 12b-1 fee✓ Correct answer
  2. BClass B shares with a declining CDSC and 1.00% 12b-1 fee
  3. CClass C shares with a 1% CDSC (first year) and 1.00% 12b-1 fee
  4. DAll share classes would cost the same over 15 years
Explanation

Why A — Class A shares with a 4% front-end load and 0.25% 12b-1 fee

For large investments held over a long period, Class A shares are typically the most cost-effective. The $200,000 investment would likely qualify for breakpoint discounts, reducing the front-end load below 4%. Additionally, the lower ongoing 12b-1 fee (0.25% vs 1.00%) saves 0.75% annually, which compounds significantly over 15 years. Class B and C shares with their higher ongoing fees would cost substantially more.

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