Five months ago, you purchased 200 shares of a mutual fund at an offering price of $54 a share. The fund imposes a front-end load of 4.5% and has total annual expenses of 1.08%. The NAV of the fund today is $52.40. There were no fund distributions during these five months. What is your holding period return on this investment?

Question

Quizplus · Accepted Answer

The holding period return (HPR) can be calculated by considering the initial cost per share including the front-end load, the final NAV, and any distributions (which in this case are zero). The initial cost per share including the front-end load is $54 * (1 + 0.045) = $56.43. Since there were no distributions and the final NAV is $52.40, the HPR is ((52.40 - 56.43) / 56.43) * 100 = (-4.03 / 56.43) * 100 = -7.14%. However, the provided options do not include this result, suggesting a possible miscalculation or misunderstanding in the initial setup. Given the options and the scenario, recalculating accurately:Initial cost per share including the front-end load = $54 * (1 + 0.045) = $56.43 is incorrect. Correct calculation: $54 * (1 - 0.045) = $51.57.The correct initial cost per share is $54 * (1 - 0.045) = $54 - ($54 * 0.045) = $54 - $2.43 = $51.57 (since the load fee reduces the amount invested, not increases it).Thus, the correct HPR calculation should be based on this corrected initial cost:HPR = ((Final NAV - Initial Cost) / Initial Cost) * 100 = (($52.40 - $51.57) / $51.57) * 100 = (0.83 / 51.57) * 100 ≈ 1.61%.Given the recalculated HPR does not match the exact figures provided in the options and acknowledging the mistake in the initial calculation, the correct approach to find the HPR involves accurately accounting for the front-end load and using the correct formula. Without the exact match in the provided options and recognizing the error in the initial response, the correct answer should reflect the actual decrease in value, considering the initial misunderstanding in the calculation process. The correct calculation method shows a loss, but the specific options provided do not accurately reflect the recalculated outcome. Therefore, the initial response aimed to calculate the HPR based on the given data, but the correct calculation reveals a loss, indicating a need to re-evaluate the options based on the correct initial investment cost calculation method.

Five Months Ago, You Purchased 200 Shares of a Mutual