Question

Consider a mutual fund with $620 million in assets at the start of the year and 10 million shares outstanding. The fund invests in a portfolio of stocks that provides dividend income at the end of the year of $3.5 million. The stocks included in the fund's portfolio increase in price by 8%, but no securities are sold and there are no capital gains distributions. The fund charges 12b-1 fees of 1.00%, which are deducted from portfolio assets at year-end.

**a.** What is the fund's net asset value at the
start and end of the year? **(Round "End of the year" to 3
decimal places.)**

**b.** What is the rate of return for an investor
in the fund? **(Round your intermediate calculations to 3
decimal places and final answer to 2 decimal places.)**

Answer #1

a)

Net asset value at the start of the year = Beginning assets /
number of shares outstanding

= $620 million / 10 million

= **$62**

Net asset value at the end of the year = ((Assets in the beginning
* (1 + growth rate)) * (1 - 12b-1 charges)) / Number of shares
outstanding

= (($620 * (1 + 8%)) * (1 - 1%)) / 10

= $662.904 / 10

= **$66.290**

b)

Dividend per share = $3.5 / 10 = $0.35

Rate of return = (Net asset value at the end of the year +
Dividend per share - Net asset value at the start of the year) /
Net asset value at the start of the year

= ($66.290 + $0.35 - $62) / $62

= 7.48%

**Rate of return = 7.48%**

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