Asked by Dinesh Sivanesan on Jul 09, 2024
Verified
Consider a no-load mutual fund with $400 million in assets, 50 million in debt, and 15 million shares at the start of the year and with $500 million in assets, 40 million in debt, and 18 million shares at the end of the year. During the year investors have received income distributions of $.50 per share and capital gain distributions of $.30 per share. If the total expense ratio is .75%, what is the rate of return on the fund?
A) 12.09%
B) 12.99%
C) 8.25%
D) The answer cannot be determined from the information given.
No-load Mutual Fund
A mutual fund that does not charge any type of sales load or commission, allowing investors to put more of their money directly into investments.
Expense Ratio
The annual fee that mutual funds, index funds, and ETFs charge their shareholders, expressed as a percentage of the fund's average net assets.
- Learn the processes involved in calculating the net asset value (NAV) and its repercussion on mutual fund dealings.
- Acquire knowledge on evaluating the performance of mutual funds by examining their past achievements to forecast future returns.
Verified Answer
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Final Answer :
A
Explanation :
Since this is a no-load fund, all charges are already embedded in gross return. Thus, gross return and net return are the same.
NAV0 = (400 - 50)/15 = 23.33
NAV1 = [500 - 500(.0075) - 40]/18 = 25.35
Gross return = (25.35 - 23.33 + .80)/23.33 = 12.09%
NAV0 = (400 - 50)/15 = 23.33
NAV1 = [500 - 500(.0075) - 40]/18 = 25.35
Gross return = (25.35 - 23.33 + .80)/23.33 = 12.09%
Learning Objectives
- Learn the processes involved in calculating the net asset value (NAV) and its repercussion on mutual fund dealings.
- Acquire knowledge on evaluating the performance of mutual funds by examining their past achievements to forecast future returns.
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