Question

5. You purchased 500 shares of the New Fund at a price of $30 per share at the beginning of the year. You paid a front-end load of 3%. The securities in which the fund invests increase in value by 15% during the year. The fund’s expense ratio is 1%. What is your rate of return on the fund if you sell your shares at the end of the year?

(Hints: (i) the offering price was above $30; (ii) calculate expenses as % of MV₀; (iii) subtract expenses from MV₁).

Answer 1

Price at the end of the year = [Price at Beginning*(1+Return)]-[Price at Beginning*Expense Ratio] = [30*(1+0.15)]-[30*0.03] = 34.5-0.9 = $33.6

As 500 shares are purchased, its purchase price will be 500*30 = 15000 and Front End Load will be paid over and above $15000. Front End Load = 15000*3% = $450. Therefore, Total Investment = 15000+450 = $15450

Sales Value = 500*33.6 = $16800

Rate of Return = [Sales Value-Investment Value]/Investment Value [16800-15450]/15450 = 1350/15450 = 0.087379 = 8.7379%