Question

You purchased 1,000 shares of the New Fund at a price of $23 per share at the beginning of the year. You paid a front-end load of 2.5%. The securities in which the fund invests increase in value by 9% during the year. The fund's expense ratio is 1.3%.

What is your rate of return on the fund if you sell your shares at the end of the year?

Answer 1

5%

Step-by-step explanation:

Front-end load = 2.5%

The cost of 1,000 shares:

= (1,000 × $23) ÷ (1 - 0.025)

= $23,590

NAV at the end of the year = NAV in the beginning × (1 + r - expense ratio)

= $23 × (1 + 0.09 - 0.013)

= $23 × 1.077

= $24.771

Value of 1,000 shares at the end of the year:

= NAV at the end of the year × 1,000 shares

= $24.771 × 1,000

= $24,771

Rate of return:

= (Value of shares at the end ÷ Value of shares in the beginning) - 1

= ($24,771 ÷ $23,590) - 1

= 0.05006 or 5%