If an individual has $20,000 invested in a bond fund with an expense ratio of 0.48%, how much will they be charged annually?
Understand the Problem
The question is asking how much an individual will be charged annually based on their investment amount and the expense ratio of the bond fund. To solve this, we will calculate 0.48% of $20,000.
Answer
The annual charge is $96.
Answer for screen readers
The annual charge will be $96.
Steps to Solve
- Identify the expense ratio as a decimal
The expense ratio is given as 0.48%. To convert this percentage to a decimal, divide by 100. [ 0.48% = \frac{0.48}{100} = 0.0048 ]
- Multiply the investment amount by the decimal expense ratio
Now, take the investment amount of $20,000 and multiply it by the decimal form of the expense ratio. [ \text{Annual Charge} = 20,000 \times 0.0048 ]
- Calculate the annual charge
Perform the multiplication to find the total annual charge. [ \text{Annual Charge} = 20,000 \times 0.0048 = 96 ]
The annual charge will be $96.
More Information
The annual charge is calculated based on the $20,000 investment and the expense ratio of 0.48%. This means that for every $100 invested, the cost would be $0.48, resulting in an annual cost of $96 for a $20,000 investment.
Tips
- Misinterpreting Percentages: A common mistake is forgetting to convert the percentage to a decimal before performing calculations. Always divide by 100 when converting from percent to decimal.
