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?

Solutions

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 1 month ago

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