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1 February, 23:52

Consider a no-load mutual fund with $580 million in assets and 20 million shares at the start of the year and with $630 million in assets and 21 million shares at the end of the year. During the year investors have received income distributions of $6 per share and capital gain distributions of $0.50 per share. Assuming that the fund carries no debt, and that the total expense ratio is 2%, what is the rate of return on the fund

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  1. 2 February, 00:15
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    Answer: 25.86%

    Explanation:

    Solving this question requires that we use all gains made and divide it by the original Nat Asset Value.

    Here goes,

    Opening NAV

    NAV = Total Assets / No. Of shares

    NAV = 580/20

    Opening NAV = $29

    Closing NAV

    NAV = Total Assets / No. Of shares

    NAV = 630/21

    Closing NAV = $30

    Rate of Return.

    Calculating the rate of return will be as follows,

    = (Closing NAV - Opening NAV + Capital gains distributions + income distributions) / Opening NAV

    = (30 - 29 + 6 + 0.5) / 29

    = 0.25862068965

    = 25.86%

    The rate of return on the fund is 25.86%
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