In: Finance
Consider a mutual fund with $219 million in assets at the start of the year and with 12 million shares outstanding. The fund invests in a portfolio of stocks that provides dividend income at the end of the year of $6 million. The stocks included in the fund's portfolio increase in price by 7%, but no securities are sold, and there are no capital gains distributions. The fund charges 12b-1 fees of 0.50%, which are deducted from portfolio assets at year-end. a. What is the net asset value at the start and end of the year?
What is the rate of return for an investor in the fund?
Total assets = 219000000
NAV formula = Total assets/Outstanding shares
219000000 / 12000000
18.25
Dividend received by fund on Investment=
6000000
Stocks net increase in value= Increase - lb1 fees
charges
7%-0.5%= 6.50%
So increase in assets value = Assets*Net increase
219000000 *6.5%
14235000
Total assets at end =Opening value+ Dividend received+Increase in
value
219000000+6000000+14235000
239235000
Closing NAV= value of Assets/no of shares
239235000 / 12000000
19.93625
Rate of return for investor = (Closing Nav - opening NAV)/opening
NAV
(19.93625-18.25)/18.25
0.09239726027
or 9.24%
So Nav at start is 18.25
at end of year is 19.93625
rate of return is 9.24%