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18 July, 17:34

You purchased 1,000 shares of the New Fund at a price of $23 per share at the beginning of the year. You paid a front-end load of 2.5%. The securities in which the fund invests increase in value by 9% during the year. The fund's expense ratio is 1.3%.

What is your rate of return on the fund if you sell your shares at the end of the year?

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  1. 18 July, 17:42
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    5%

    Explanation:

    Front-end load = 2.5%

    The cost of 1,000 shares:

    = (1,000 * $23) : (1 - 0.025)

    = $23,590

    NAV at the end of the year = NAV in the beginning * (1 + r - expense ratio)

    = $23 * (1 + 0.09 - 0.013)

    = $23 * 1.077

    = $24.771

    Value of 1,000 shares at the end of the year:

    = NAV at the end of the year * 1,000 shares

    = $24.771 * 1,000

    = $24,771

    Rate of return:

    = (Value of shares at the end : Value of shares in the beginning) - 1

    = ($24,771 : $23,590) - 1

    = 0.05006 or 5%
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