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25 May, 08:13

Consider a mutual fund with $300 million in assets at the start of the year and 10 million shares outstanding. The fund invests in a portfolio of stocks that provides dividend income at the end of the year of $1.5 million. The stocks included in the fund's portfolio increase in price by 7%, but no securities are sold and there are no capital gains distributions. The fund charges 12b-1 fees of. 75%, which are deducted from portfolio assets at year-end. a. What is the fund's net asset value at the start and end of the year?

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  1. 25 May, 09:09
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    Answer: Start = $300 million

    End = $318.59 million

    Explanation:

    NAV can be calculated by dividing the funds Assets net of Liabilities by the total number of outstanding shares.

    At start of the year NAV is $300 million and NAV per share is therefore,

    = 300 million / 10 million

    = $30 per share.

    Ending NAV

    During the year the fund made Investments and increased by a price of 7%

    = 300 million (1 + 0.07)

    = $321 million

    We still have to subtract the 12b-1 fees that the fund charges though and that would result in,

    = 321 million * (1 - 0.0075)

    = 318.5925

    = $318.59 million.

    Dividing this by the total number of outstanding shares we have,

    = 318.59 / 10

    = $31.86

    $31.86 is the NAV per share at year end.
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