Consider a mutual fund with $203 million in assets at the start of the year and with 10 million shares outstanding. The fund invests in a portfolio of stocks that provides dividend income at the end of the year of $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 0.75%, which are deducted from portfolio assets at year-end.

Consider a mutual fund with $203 million in assets at the start of the year and with 10 million shares outstanding. The fund invests in a portfolio of stocks that provides dividend income at the end of the year of $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 0.75%, which are deducted from portfolio assets at year-end.

a.	What is net asset value at the start and end of the year? (Enter your answers in dollars rounded to 3 decimal places.)

 

	Net Asset Value
Start of the year	$
End of the year

   

b.	What is the rate of return for an investor in the fund? (Use rounded "Net Asset Value". Round your answer to 2 decimal places.)

 

Rate of return

%

Explanation:

a.

Start of year NAV =	Market value of assets − Market value of liabilities
	Shares outstanding

=	$203,000,000	= $20.300
	10,000,000

End of year NAV is based on the 7% price gain, less the 0.75% 12b-1 fee:

End of year NAV = $20.300 × 1.07 × (1 − 0.0075) = $21.558

b.

Given the dividends per share is $0.50, we can calculate the rate of return using the following equation:

Rate of return =	Δ(NAV) + Distributions
	Start of year NAV

=	($21.558 − $20.300) + $0.50	= 0.0866 = 8.66%
	$20.300