Question

Consider a no-load mutual fund with $250 million in assets and 9 million shares at the start of the year, and $390 million in assets and 11 million shares at the end of the year. Investors have received income distributions of $5 per share, and capital gains distributions of $0.40 per share.

Required:
1. Assuming that the fund carries no debt, and that the total expense ratio is 1%, what is the rate of return on the fund?

Answer 1

25.70%

Step-by-step explanation:

Net Asset Value in year 0 = $290 ÷ 9 = $32.22

Net Asset Value in year 1 = [$390 - ($390 × 1%)] ÷ 11 = $35.10

Rate of return = ($35.10 - $32.22 + $5 + $0.40) ÷ $32.22 = 0.2570, or 25.70%

Therefore, the rate of return on the fund is 25.70%.