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The following data relate to a mutual fund: Assets at the beginning of year: $400 million,...

The following data relate to a mutual fund:

Assets at the beginning of year: $400 million, Number of shares outstanding: 25 million shares, Dividend income at the end of the year: $5 million, 12b-1 fees: 1%. The stocks included in the fund's portfolio increase in price by 7%, but no securities are sold, and there are no capital gains distributions. What is the rate of return for an investor in the fund?

a. 16%

b. 5.93%

c. 7.25%

c. 0%

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Answer #1

The Correct answer is 7.25%

Initial Investment - $400 Million

Dividend Income - $5 Million

12b-1 Fees - 1%

= 1% * 400 Millions

= $4 Millions

Portfolio Increased by 7%

= 7% * Initial Investment

= 7% * 400 Millions

= $28 Millions

Net Holding period return =[ (Dividend - 12b-1 Fees) + Increase in Portfolio Value] / Initial Investment

= (5-4) + 28 / 400

= 29/400

= 0.0725

or 7.25%

So, The Net percentage increase in the value of the portfolio is 7.25% Option c is the correct answer

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