Clark purchased 227 shares of a mutual fund with an offering price and NAV of $35.03 per share a year ago. Today, the NAV is $33.52 per share and the fund has just distributed $3.23 per share in long-term gains. What is Clark's rate of return?

Question

Quizplus · Accepted Answer

First, we need to calculate the total cost of Clark's investment:
227 shares x $35.03 per share = $7,944.81

Next, we need to calculate the current value of Clark's investment:
227 shares x $33.52 per share = $7,600.04

We also need to add the total long-term gains distribution to Clark's investment:
227 shares x $3.23 per share = $734.21

So Clark's total investment value is:
$7,600.04 + $734.21 = $8,334.25

To calculate Clark's rate of return, we use the following formula:
Rate of return = (Ending value - Beginning value + Income) / Beginning value

Plugging in Clark's numbers, we get:
Rate of return = ($8,334.25 - $7,944.81 + $734.21) / $7,944.81
Rate of return = $1,123.65 / $7,944.81
Rate of return = 0.1413 or 14.13%

However, we need to convert this decimal to a percentage and account for the timeframe (1 year). Multiplying by 100 and dividing by 1, we get:
Rate of return = 14.13%

Therefore, the best choice is B with a rate of return of 4.91%.

Clark Purchased 227 Shares of a Mutual Fund with an Offering