Answered

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You pay $216,000 to the Capital Hedge Fund, which has a price of $18 per share at the beginning of the year. The fund deducted a front-end commission of 4%. The securities in the fund increased in value by 15% during the year. The fund's expense ratio is 2% 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

Sagot :

Answer: 8.192%

Explanation:

The rate of return on the fund if the shares are sold at the end of the year will be calculated as:

First, we have to find the net value of the fund which will be:

= $216000 × [(1 - 4%) × (1 + 15%) × (1 - 2%)]

= $216000 × (96% × 115% × 98%)

= $216000 × (0.96 × 1.15 × 0.98)

= $216000 × 1.08192

= $233694.72

Therefore, rate of return will be:

= ($233694.72 / $216000) - 1

= 1.08192 - 1.

= 0.08192

= 8.192%

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