Question

You purchased 2,500 shares of the ABC Fund at a price of $38 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 1.5%. 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

Answer-

Total value at the beginning of year = number of shares x price per share = 2500 x $ 38 = $ 95000

Front end load paid = 4 %
Amount paid for front end load = 0.04 x $ 95000 = $ 3800

remaining amout after paying front end load = $ 95000 - $ 3800 = $ 91200

Increase in securities invested in fund= 12 % = 0.12
Value = $ 91200 x ( 1 + 0.12) = $ 91200 x 1.12 = $ 102144

The funds expense ratio which is the operating expenses for the value of assets = 1.5 %

Value of expense ratio = $ 102144 x 1.5 %
= $ 102144 x 0.015  
= $ 1532.16

Value after deducting operating expenses = $ 102144 - $ 1532.16 = $ 100611.84

rate of return on the fund if we sell your shares at the end of the year
= Final value - Initial value of purchase)/ Initial value of purchase

= $ 100611.84 - $ 95000 / $ 95000
= 5611.84 / $ 95000
= 0.0591
= 5.91 %

Therefore rate of return on selling at the end of year = 5.91%