Consider a mutual fund with $219 million in assets at the start of the year and...

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?

Expert Solution

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%

jeff jeffy answered 4 months ago

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