Question

A mutual fund’s net asset value is $39.30, but the fund charges a 3 percent load fee (front- loaded) and an exit fee of 1 percent (if redeemed in 6 months) of net asset value. An individual client purchases 10 shares of the mutual fund on Jan 5 of year 20X1. During the year 20X1, the fund distributes $3.45 capital gain and $0.75 dividend income. The net asset value rises to $42.12 on Jan 5 of year 20X2 and the investor redeems the shares.

a) What is the percentage return the fund can report that was achieved by its portfolio managers? (1 point)

b) What is the percentage return the individual earned on the investment? Why is this answer different from the answer in part (a)? (1 point)

Answer 1

(a) Percentage Percentage of Return achieved by Portfolio Managers - = $39.30 = $42.12 NAV on 5th Jan 20x1 NAV on 5th Jan 20x2 Amt distributed Capital Gain * Dividend = $3.45 - $0.75 .. Return earned = $3.45 $0.75 Ⓡ$(42.12- 39.30) = $7.02 . Return s.) = 7.02 x 100 39.30 17.8626% = (b) Percentage of Return earned by shareholder Purchase Price = $39.30+3% (Entry Load) - $40.48 Redemption Price = $42.12 (As no exit load will be charged) estern earned = $3.45 $0.75 $ (42.12- 40 201 = $5.84 Return (%) W = 5.84 = 5.84 x100 Joo = 14.4269% 40.48 in both returns is due to consideration ne r shareholder while no entry load to Portfolio Man ten of Portfolio Manager The difference in both re entry load for shareholder