Question

Consider a no-load mutual fund with \$250 million in assets and 17 million shares at the...

Consider a no-load mutual fund with \$250 million in assets and 17 million shares at the start of the year, and \$430 million in assets and 18 million shares at the end of the year. Investors have received income distributions of \$8 per share, and capital gains distributions of \$0.50 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?

a. 62.50%

b. 118.62%

c. 3.02%

d. There is not sufficient information to answer this question

Rate of Return on the fund

Net Asset Value at the beginning (NAV0)

Net Asset Value at the beginning (NAV0) = Total assets at the beginning / Number of shares outstanding

= \$250 Million / 17 Million shares

= \$14.7059 per share

Net Asset Value at the end (NAV1)

Net Asset Value at the end (NAV1) = [Total assets at the end x (1 – Expense Ratio)] / Number of shares outstanding

= [\$430 Million x (1 – 0.01)] / 18 Million shares

= \$425.70 Million / 18 Million Shares

= \$23.60 per share

Dividend Distribution = \$8.00 per share

Capital Gain distribution = \$0.50 per share

Therefore, the Rate of return = [{(NAV1 – NAV0) + Dividend & Capital Gain} / NAV0] x 100

= [{(\$23.65 - \$14.7059) + \$8.00 + \$0.50} / \$14.7059] x 100

= [(\$8.9441 + \$8.00 + \$0.50) / \$14.7059] x 100

= [\$17.4441 / \$14.7059] x 100

= 118.62%

“Hence, the Rate of return on the fund would be (b). 118.62%”

Earn Coins

Coins can be redeemed for fabulous gifts.