Question

The Global Growth Fund is a load fund with a 4 percent front load fee. It started the year with a net asset value (NAV) of $16.00. During the year the fund distributed $1.15, and at the end of the year its NAV was $17.80. What was the fund's return, and what was an investor's return? Round your answers to two decimal places.

The fund's return:

Return on the individual's investment:

Why are they different?

The answers are different because the fund reports its return based on the and the investrors calculate their return based on the

Answer 1

Fund's return is computed as shown below:

= [ NAV at the end of year + distribution - NAV at start of the year ] / NAV at start of the year

= [ $ 17.80 + $ 1.15 - $ 16.00 ] / $ 16.00

= $ 2.95 / $ 16.00

= 18.44% Approximately

Return on individual investment is computed as follows:

= [ NAV at the end of year + distribution - NAV at start of the year x (1 + front load fees) ] / NAV at start of the year x (1 + front load fees)

= [ $ 17.80 + $ 1.15 - $ 16.00 x 1.04] / $ 16.00 x 1.04

= $ 2.31 / $ 16.64

= 13.88% Approximately

The answers are different because the fund reports its return based on the NAV basis and the investors calculate their return based on the purchase price.

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