Question

One year ago, you purchased $6,000 worth of a mutual fund at an offering price of $38.10 a share. Today, the fund distributed $0.20 in short-term gains and $1.04 in long-term gains. The current offering price is $41.80. The fund has a front-end load of 5 percent and total annual operating expenses of 1.25 percent. What is your rate of return on this investment?

a. 7.48 percent
b. 9.91 percent
c. 2.87 percent
d. 3.54 percent
e. 6.06 percent

Answer 1

a. 7.48%

Step-by-step explanation:

Number of shares = $ 6,000 / $ 38.10

Number of shares = 157.48

Rate of return = [Number of shares * (Short term gans + Long term gains + ((1 - Front end load) * (Current offering price)) - Purchase price] / Purchase price

Rate of return = [157.48 * ($0.20 + $1.04 + ((1 - 0.05 ) * $41.80)) - $6,000] / $6,000

Rate of return = [157.48 * ($0.20 + $1.04 + (0.95 * $41.80)) - $6,000] / $6,000

Rate of return = [157.48 * ($1.24 + $39.71) - $6,000] / $6,000

Rate of return = $448.806 / $6,000

Rate of return = 0.074801

Rate of return = 7.48%