Consider a no-load mutual fund with $400 million in assets,50 million in debt,and 15 million shares at the start of the year; and $500 million in assets,40 million in debt,and 18 million shares at the end of the year.During the year investors have received income distributions of $0.50 per share,and capital gains distributions of $0.30 per share.Assuming that the fund carries no debt,and that the total expense ratio is 0.75%,what is the rate of return on the fund?

Question

Quizplus · Accepted Answer

To find the rate of return on the fund, we need to use the formula:

Ending Value - Beginning Value - Distributions / Beginning Value

First, we need to find the beginning value of the fund:

BV = (Assets - Debt) / Shares 
BV = (400 - 50) / 15 
BV = 20.00

Next, we need to find the ending value of the fund:

EV = (Assets - Debt) / Shares 
EV = (500 - 40) / 18 
EV = 23.89

Now, we can find the total distributions paid out:

Distributions = (Income Distributions + Capital Gains Distributions) * Shares 
Distributions = (0.50 + 0.30) * 15 
Distributions = 12.75

Finally, we can plug in all the values to find the rate of return:

Rate of Return = (23.89 - 20 - 12.75) / 20 
Rate of Return = 0.1209 or 12.09%

Therefore, the answer is A.

Consider a No-Load Mutual Fund with $400 Million in Assets,50