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4 June, 16:07

You purchased 3,600 shares in the New Pacific Growth Fund on January 2, 2016, at an offering price of $29.30 per share. The front-end load for this fund is 6 percent, and the back-end load for redemptions within one year is 1 percent. The underlying assets in this mutual fund appreciate (including reinvested dividends) by 6 percent during 2016, and you sell back your shares at the end of the year. If the operating expense ratio for the New Pacific Growth Fund is 1.79 percent, what is your total return from this investment? (Assume that the operating expense is netted against the fund's return.)

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  1. 4 June, 17:58
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    -3.02%

    Explanation:

    Given that,

    Shares purchased = 3,600

    Offering price = $29.30 per share

    Front-end load for this fund = 6%

    Back-end load for redemptions within one year = 1%

    Appreciation of underlying assets = 6%

    Operating expense ratio = 1.79%

    Initial net asset value:

    = Offering price * (1 - Front-end load for this fund)

    = $29.30 * (1 - 6%)

    = $29.30 * 0.94

    = $27.542

    Final net asset value:

    = Initial net asset value * [1 + (Appreciation rate - Operating expense ratio) ]

    = $27.542 * [1 + (6% - 1.79%) ]

    = $27.542 * 1.0421

    = $28.70152

    Sale proceeds per share:

    = Final net asset value * (1 - Back-end load for redemptions within one year)

    = $28.70152 * (1 - 1%)

    = $28.70152 * 0.99

    = $28.4145048

    Total return from this investment:

    = (Sale proceeds per share - Offering price) : Offering price

    = ($28.4145048 - $29.30) : $29.30

    = - 3.02%
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