Question

Assume that you have recently purchased 200 shares in an investment company. Upon examining the balance sheet, you note that the firm is reporting $200 million in assets, $70 million in liabilities, and 20 million shares outstanding. What is the net asset value (NAV) of these shares?

Consider a no-load mutual fund with $350 million in assets and 14 million shares at the start of the year and with $400 million in assets and 15 million shares at the end of the year. During the year investors have received income distributions of $2 per share and capital gain distributions of $.25 per share. Assuming that the fund carries no debt, and that the total expense ratio is 1%, what is the rate of return on the fund?

An open-end fund has a NAV of $23.50 per share. The fund charges a 6% load. What is the offering price?

You invest in a mutual fund that charges a 2% front-end load, 1% total annual fees, and no back-end load. How much will you pay in fees on a $10,000 investment if you redeem shares with no growth in value after 1 year?

Answer 1

1). NAV = (Assets - liabilities)/number of shares = (200-70)/20 = 130/20 = $6.5 per share

2). Expense ratio = 1% calculated as 1% of assets so expenses at the beginning of the year are 1%*350 = 3.5 million

NAV at the beginning of the year (NAV1) = (assets - expenses)/number of shares = (350-3.5)/14 = $24.75

Expenses at the end of the year = 1%*400 = 4 million

NAV at the end of the year (NAV2) = (assets - expenses)/number of shares = (40 -4)/15 = $26.40

Total distribution = income distribution + capital gains distribution = 2 + 0.25 = 2.25

Total = NAV2 + Total distribution = 26.40 + 2.25 = 28.65

Return = Total/NAV1 -1 = (28.65/24.75) -1 = 15.76%