Question

You purchased 1,000 shares of the New Fund at a price of $20 per share at the beginning of the year. You paid a front-end load of 4%. The securities in which the fund invests increase in value by 12% during the year. The fund’s expense ratio is 1.2%. What is your rate of return on the fund if you sell your shares at the end of the year?

Answer 1

Answer:

rate of return on the fund will be 6.37%

Explanation:

given data

purchased shares =  1,000

price = $20 per share

paid a front-end load = 4%

fund invests increase = 12%

fund’s expense ratio = 1.2%

solution

we get here Rate of return  that is express as

Rate of return = (Aggregate investment value after one year - Investment value) ÷  investment value    .....................1

here

first we get here cost of shares that will be

Cost of shares = number of shares ×  price per share   ...........2

put here value

Cost of shares = 1000 × $20

Cost of shares = $20,000

and

now we get total amount invested will be

total amount invest = Purchasing cost ÷ (1- front-end load)   .............3

put here value and we get

total amount invest = $20,000 ÷ (1-0.04)

total amount invest = $20,833.333

and

Investment value after one year will be

Investment value = Total Investment × ( 1+ price increase-expense ratio)   .............4

put here value and we get

Investment value =  $20,000 × ( 1 +0.12 -0.012)

Investment value = $22,160

so

now we put all value in equation 1 we get Rate of return

Rate of return = $\frac{22,160-20,833.333}{20,833.333}$  

solve it we get

Rate of return = 0.0637

Rate of return = 6.37%