Question

You purchased 500 shares of the Select Fund at a price of $30 per share at the beginning of the year. You paid a front-end load of 2%. The securities in which the fund invests increase in value by 15% during the year. The fund’s expense ratio is 1.5%. What is your rate of return on the fund if you sell your shares at the end of the year? Give your answer as a percentage (omit percent sign).

Answer 1

Initial investment = Number of shares * Share price * (1 + front-end load)

Initial investment = 500 * 30 * (1 + 0.02) = $15,300

Average value of the funds = (Beginning of the year funds + Ending of the year funds)/2

Beginnig of the year funds = 30 * 500 = 15,000

Ending of the year funds = 30 * 500 * 1.15 = 17,250

Average value of the funds = (15,000 + 17,250)/2 = $16,125

The fund's expense = 16,125 * 0.015 = $241.875

Rate of return = (Ending of the year funds - The fund's expense)/Initial investment - 1

Rate of return = (17,250 - 241.875)/15,300 - 1

Rate of return = 0.1116421569

Rate of return = 11.16421569%