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Personal Financial Advisor

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AVG. SALARY

$111,210

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EDUCATION

Bachelor's degree

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JOB OUTLOOK

Stable

Real-Life Activities

Real-Life Math -- Solution

Before you can advise your clients, you need to figure out what the real rate of return on the Megabucks fund is. So you use the formula:

Real rate of return = (1 + i) x [1 - (x / n)] - 1
i = the published rate of return
x = the percentage of front-end load paid
n = the number of years the investments are held

In this case:

i = 13 percent or 0.13
x = 4 percent or 0.04
n = 3

Real rate of return = (1 + 0.13) x [1 - (0.04 / 3)] - 1
Real rate of return = (1.13) x (1- 0.013) - 1
Real rate of return = (1.13) x (0.987) - 1
Real rate of return = 1.12 - 1
Real rate of return = 0.12 or 12 percent

The real rate of return for Megabucks is 12 percent over 3 years. Even though Megabucks' return looks better, QuickGrow -- with a return of 14 percent over 3 years -- is the one that actually gives your clients a better rate of return.