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?

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?

• A. 0.8%
• B. 4.75%
• C. 5.5%
• D. 6.25%

Answer: (B)

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%.