Question

An investor purchases a mutual fund share for $100. The fund pays dividends of $6, distributes...

An investor purchases a mutual fund share for $100. The fund pays dividends of $6, distributes a capital gain of $7, and charges a fee of $5 when the fund is sold one year later for $110. What is the net rate of return from this investment? (Round your answer to the nearest whole number.)

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Answer #1

Solution:

The formula for calculating the net rate of return from an Investment:

= [ ( Sale price + Dividend earned during the period + Capital gain received during the period – Fees charged – Purchase Price ) / Purchase Price ]

As per the information given in the question is

Purchase price = $ 100

Dividend earned = $ 6

Capital gain received = $ 7

Fees charged by the mutual fund = $ 5

Sale Price = $ 110

Applying the following information in the formula we have

= ( 110 + 6 + 7 - 5 - 100 ) / 100

= 18 /100 = 18 %

Thus the net rate of return from an investment = 18 %

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