Question

You purchased 1,000 shares of the New Fund at a price of $35 per share at the beginning of the year. You paid a front-end load of 4%. The securities in which the fund invests increase in value by 12% during the year. The fund's expense ratio is 1.2%.

What is your rate of return on the fund if you sell your shares at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

The computation of the rate of return is shown below:

As we know that

Rate of return = (Total investment after one year - Total investment) / (Total investment)

where,

Total investment is

= Purchase cost / (1 - front end load)

= (1,000 * $35) / (1 - 0.04)

= $35,000 / 0.96

= $36,458.33

And,

Total investment after one year is

= Total investment * (1 + increase in price - expense ratio)

= $35,000 * (1 + 0.12 - 0.012)

= $35,000 * 1.108

= $38,780

Now the rate of return is

= ($38,780 - $36,458.33) / ($36,458.33)

= 6.37%

hence, the rate of return is 6.37%