You pay $23,100 to the Laramie Fund, which has a NAV of $21 per share at the beginning of the year. The fund deducted a front-end load of 5%. The securities in the fund increased in value by 10% during the year. The fund's expense ratio is 1.6% and is deducted from year-end asset values. What is your rate of return on the fund if you sell your shares at the end of the year

Question

Armani

Business

30 March, 17:27

You pay $23,100 to the Laramie Fund, which has a NAV of $21 per share at the beginning of the year. The fund deducted a front-end load of 5%. The securities in the fund increased in value by 10% during the year. The fund's expense ratio is 1.6% and is deducted from year-end asset values. What is your rate of return on the fund if you sell your shares at the end of the year

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Steven Glass · Answer 1

2.83%

Explanation:

Actual initial investment=$23,100-5% front-end load=$23,100 - (5%*$23100) = $21,945.00

The number of shares = 21,945.00/$21=1045 shares

The securities increased in value by 10% i. e $21 increased by 10%

new security value=$21 * (1+10%) = $23.1 0

If the shares were sold at end of the year the cash receivable by the investor is computed thus:

cash=new security value*number of shares-1.6% expense ratio

cash = 23.10*1045=$24,139.50

cash paid to investor = 24,139.50 - (24,139.50*1.6%) = $23,753.27

rate of return=cash received-cash invested/cash invested = (23,753.27-23,100) / 23100