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16 February, 16:18

You pay $21,600 to the Laramie Fund, which has a NAV of $18 per share at the beginning of the year. The fund deducted a front-end load of 4%. The securities in the fund increased in value by 10% during the year. The fund's expense ratio is 1.3% and is deducted from year-end asset values. What is your rate of return on the fund if you sell your shares at the end of the year?

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  1. 16 February, 17:39
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    4.23%

    Explanation:

    Given

    Investment = $21,600

    Front-end load = 4%

    Rate of return is calculated by:

    End investment - Beginning investment / Beginning investment

    First we calculate the available fund.

    This is calculated as:

    Available fund = Investment x (1 - Front-end load %)

    Available Fund = $21,600 x (1 - 4%)

    Available Fund = $21,600 * (1 - 0.04)

    Available Fund = $20,736

    Then we Calculate the number of shares.

    This is given by;

    Shares = Available Fund/NAV

    Where NAV = $18 Per share

    Shares = $20,736/$18 per share

    Shares = 1,152 shares

    The NAV end is then calculated.

    This is calculated by;

    NAV End = NAV Begining * (1 + Growth rate)

    NAV End = $18 * (1+.10)

    NAV End = $18 * 1.10

    NAV End = $19.80

    The Year end asset value is then calculated by

    Assets Value = NAV end * number of shares

    Assets Value = $19.80 x 1,152

    Assets Value = $22,809.60

    The end investment is also calculated by;.

    End investment=year end asset value x (1 - expense ratio)

    End Investment = $22,809.60 x (1-.013)

    End Investment = $22,513.08

    Lastly, End investment - Beginning investment / Beginning investment

    = (22,513.08-21,600) / 21,600

    =0.0423

    = 4.23%
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