You purchased 1,000 shares of fund ABC for $35.00 NAV per share.You elected the dividend reinvestment plan and had all dividend and capital gains distributions reinvested in additional shares.You just closed your account and sold 1,100 shares for $30 NAV.What was your total return on this investment?

Question

Quizplus · Accepted Answer

The initial investment cost is 1,000 shares * $35.00 NAV per share = $35,000.
Assuming a 5% dividend and capital gains distribution each year over a holding period of, say, three years, the number of shares grows to:
Year 1: 1,000 + (1,000 * 5%) = 1,050 shares
Year 2: 1,050 + (1,050 * 5%) = 1,102.5 shares
Year 3: 1,102.5 + (1,102.5 * 5%) = 1,157.63 shares
The closing value of the investment is 1,100 shares * $30 NAV = $33,000.
The total return is ($33,000 - $35,000) / $35,000 = -0.0571 or -5.71%.
Therefore, the correct answer is B.

You Purchased 1,000 Shares of Fund ABC for $35