Question

You purchased 2,400 shares of the New Fund at a price of $30 per share at the beginning of the year. You paid a front-end load of 4%. The securities in which the fund invests increase in value by 13% during the year. The fund's expense ratio is 2.6%. What is your rate of return on the fund if you sell your shares at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Rate of return             %

Answer 1

The total Cost of the shares purchased = (Number of shares x Price) / (1 - front-end load)

= (2,400 x $30) / (1 – 0.04)

= $72,000 / 0.96

= $75,000

NAV at the end = Share Purchase Price x (1 + Increase in value percentage – Fund Expense Ratio)

=$30 x (1 + 0.13 – 0.026)

= $30 x 1.104

= $33.12

Value at the End = 2,400 Shares x $33.12 = $ 79,488

Rate of return = [(Value at the end / Cost of shares purchase) – 1] x 100

= [($79,488 – 75,000) – 1] x 100

= 5.98%

“Therefore, The Rate of return = 5.98%”