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%**

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