In a unit-linked fund, if the fund earns 4.0% before charges and the annual management charge is 1.0% per year, by what percentage will the unit price increase that year?

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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

In a unit-linked fund, if the fund earns 4.0% before charges and the annual management charge is 1.0% per year, by what percentage will the unit price increase that year?

Explanation:
In a unit-linked fund, the unit price moves with the fund’s value after charges are taken out. If the fund earns 4.0% before charges and the annual management charge is 1.0%, the net increase in the unit price is 4.0% − 1.0% = 3.0%. So the unit price rises by 3% for that year. This reflects how fees reduce the gross return to the investor.

In a unit-linked fund, the unit price moves with the fund’s value after charges are taken out. If the fund earns 4.0% before charges and the annual management charge is 1.0%, the net increase in the unit price is 4.0% − 1.0% = 3.0%. So the unit price rises by 3% for that year. This reflects how fees reduce the gross return to the investor.

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