Question

1.You invested in the​ no-load OhYes Mutual Fund one year ago by purchasing 800 shares of the fund at the net asset value of ​$25.75 per share. The fund distributed dividends of ​$1.81 and capital gains of ​$1.64. ​Today, the NAV is ​$26.84. If OhYes was a load fund with a 2​% ​front-end load, what would be the​ HPR?

2.One year​ ago, Super Star​ Closed-End Fund had a NAV of​$10.38 and was selling at​ a(n) 16% discount.​ Today, its NAV is $11.73 and it is priced at​ a(n) 5 %premium. During the​ year, Super Star paid dividends of ​$0.43 and had a capital gains distribution of ​$0.93. On the basis of the above​ information, calculate each of the following.

a. Super​ Star's NAV-based holding period return for the year.

b. Super​ Star's market-based holding period return for the year. Did the market​ premium/discount hurt or add value to the​investor's return? Explain.

c. Repeat the​ market-based holding period return​ calculation, except this time assume the fund started the year at​ a(n) 16% premium and ended it at​ a(n) 5% discount. ​(Assume the beginning and ending NAVs remain at ​$10.38 and $11.73​, ​respectively.) Is there any change in this measure of​ return? Why?

Answer 1

1. Cost of purchasing 800 Shares

Particulars	Amount
Purchase price of 800 Shares @ 25.75	20600
Add: Front End Load @2%	412
Total Cost	21012

Particulars	Amount
Value of 800 Shares @ 26.84	21472
Add: Dividend @ 1.81	1448
Add: Capital Gain @ 1.64	1312
Value of Fund + Dividend + Capital Gain	24232

HPR = Value of Fund + Dividend + Capital Gain / Total Cost - 1

HPR = 24232 / 21012 - 1 = 15.32%

2. a

Ending NAV + Dividend + Capital Gain / Beginning NAV -1

11.73 + 0.43 + 0.93 / 10.38 = 26.10%

b) Starting Market Value = 10.38 (1-0.16) = 8.7192

Ending Market Value = 11.73 (1+0.05) = 12.315

HPY = Ending Market Value + Dividend + Capital Gain / Beginning Market Value

HPY = 12.315 + 0.43 + 0.93 / 8.7192 -1 = 56.83%

Premium/discount has added value to the investor because he has bought the units at discount and sold the units at premium

c) Starting Market Value = 10.38 (1+0.16) = 12.0408

Ending Market Value = 11.73 (1-0.05) = 11.1435

HPY = Ending Market Value + Dividend + Capital Gain / Beginning Market Value

HPY = 11.1435 + 0.43 + 0.93 / 12.0408 -1 = 3.84%