1. An investor purchases a mutual fund for $50. The fund pays dividends of $1.50, distributes a capital gain of $2, and charges a fee of $2 when the fund is sold one year later for $52.50. What is the net rate of return from this investment?

Answer 1

There is a net gain of 1.50 + 2.00 + 2.50 = $6.00

The total (net) return rate for the one year period is 6/50 = 12%.

Answer 2

2. Open-end Fund A has 165 shares of ATT valued at 425 each and 50 shares of Toro valued at $45 each. Close-end Fund B as 75 shares at ATT and 100 shares of Toro. Both funds have 1,000 shares outstanding. (G 17-4)
a. What is the NAV of each fund using these prices?
b. Assume that another 165 shares of ATT valued at $25 are added to Fund A. The funds needed to buy the new shares are obtained by selling 647 more shares in Fund A. What is the effect on Fund A’s NAV if the prices remain unchanged?
c. If the price of ATT stock increases to $26.25 and the price of ATT stock declines to $43,375, how does that impact the NAV of both funds? Assume that Fund A has only 100 shares of ATT.

Answer 3

4. An investor purchases a mutual fund share for $100. The fund pays dividends of $3, distributes a capital gain of $4, and charges a fee of $2 when the fund is sold one year later for $105. What is the net rate of return from this investment?