Question

The new fund had average daily assets of $3.2 billion in the past year. The fund sold $410 million and purchased $510 million worth of stock during the year. What was its turnover ratio?

Answer 1

The turnover ratio of a new fund with average daily assets of $3.2 billion, having sold $410 million in stocks, is calculated at 12.81%.

Step-by-step explanation:

Understanding Turnover Ratio in Investment Funds

The turnover ratio is a measure of a fund's trading activity, which is indicative of the fund's investment strategy and operating costs. It represents the proportion of a fund's holdings that have been replaced or "turned over" during a given period (usually a year). The higher the turnover ratio, the more active the fund is in trading its assets. To calculate the turnover ratio, we use the formula:

Turnover Ratio = (Total Sales or Purchases / Average Daily Assets) * 100%

In this case, the student asks for the turnover ratio of a new fund that had average daily assets of $3.2 billion last year. To find the turnover ratio, we consider the lesser of total sales or purchases of stock, which in the given scenario would be the total sales of $410 million. Dividing this by the average daily assets ($3.2 billion) and multiplying by 100% gives us the turnover ratio:

Turnover Ratio = ($410 million / $3.2 billion) * 100%
= 12.8125%

The fund's turnover ratio is therefore 12.8125%, rounded typically to two decimal points, giving us 12.81%.