If a unit-linked fund earns 5.5% before charges and the annual management charge is 0.75%, by how much will the unit price increase?

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Prepare for the Qualified Financial Adviser Exam 2 with flashcards and multiple choice questions, complete with hints and explanations. Get exam-ready and increase your confidence with our comprehensive study materials!

Multiple Choice

If a unit-linked fund earns 5.5% before charges and the annual management charge is 0.75%, by how much will the unit price increase?

Explanation:
The unit price increase comes from the gross return after accounting for charges. Subtract the annual management charge from the gross gain: 5.5% − 0.75% = 4.75%. So the unit price increases by 4.75%. The other numbers would result from not subtracting the charge or misapplying it (e.g., treating charges as added or ignoring them), but the correct net increase is 4.75%.

The unit price increase comes from the gross return after accounting for charges. Subtract the annual management charge from the gross gain: 5.5% − 0.75% = 4.75%. So the unit price increases by 4.75%. The other numbers would result from not subtracting the charge or misapplying it (e.g., treating charges as added or ignoring them), but the correct net increase is 4.75%.

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