Question

# Consider a mutual fund with \$340 million in assets at the start of the year and...

Consider a mutual fund with \$340 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 \$2.4 million. The stocks included in the fund's portfolio increase in price by 9%, 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.)

(a). Net asset value at the start and end of the year

• Net asset value at the start of the year (NAV0) = \$34,00,00,000 / 1,00,00,000 Shares

= \$34 per share

• Dividend per share = \$0.24 per share [\$24,00,000 / 1,00,00,000 Shares]

• Net asset value at the end of the year (NAV1) = \$34 x 1.09 x (1 – 0.01)

= \$36.689 per share

(b). Rate of return for an investor in the fund

Rate of return for an investor in the fund = [(NAV1 + D – NAV0) / NAV0] x 100

= [(\$36.689 + \$0.24 - \$34) / \$34] x 100

= [\$2.929 / \$34] x 100

= 8.61%

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