Question

A year​ ago, an investor bought 600 shares of a mutual fund at ​$8.56 per share. Over the past​ year, the fund has paid dividends of ​$0.89 per share and had a capital gains distribution of ​$0.65 per share.

a. Find the​ investor's holding period​ return, given that this​ no-load fund now has a net asset value of ​$9.11. ( answer in % and 2 decimal places)

b. Find the holding period​ return, assuming all the dividends and capital gains distributions are reinvested into additional shares of the fund at an average price of ​$8.79 per share.

Answer 1

a. Holding Period Return = (Ending Net Asset Value - Beginning Net Asset Value + Dividends + Capital gains) /  Beginning Net Asset Value*100

= (9.11-8.56+0.89+0.65)/8.56*100

= 24.42%

Answer = 24.42%

b. Cost of Purchase = 600 Shares *$ 8.56

= $ 5,136

Amount reinvested = (Dividends + Capital Distribution)*Number of Shares

= (0.89+0.65)*600

= $ 924

Units received for the amount reinvested = Amount reinvested / average price

= $ 924/$ 8.79

=105.1194539 units

Total Units after reinvestment = 600 units + 105.1194539 units

= 705.1194539 units

Closing Amount = $ 9.11 * 705.1194539 units

= $ 6,423.638225

Holding Period return = (Closing Amount - Cost of Purchase)/Cost of Purchase*100

= ($ 6,423.638225-5,136)/5,136*100

= 25.07%

Answer = 25.07%