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Homework answers / question archive / You purchased 4,600 shares in the New Pacific Growth Fund on January 2, 2019, at an offering price of $34

You purchased 4,600 shares in the New Pacific Growth Fund on January 2, 2019, at an offering price of $34

Finance

You purchased 4,600 shares in the New Pacific Growth Fund on January 2, 2019, at an offering price of $34.20 per share. The front-end load for this fund is 5 percent, and the back-end load for redemptions within one year is 3 percent. The underlying assets in this mutual fund appreciate (including reinvested dividends) by 7 percent during 2019, and you sell back your shares at the end of the year. If the operating expense ratio for the New Pacific Growth Fund is 1.03 percent, what is your total return from this investment? (Assume that the operating expense is netted against the fund's return.) (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 Total return?

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Computation of Total Return:

Total return = ( Sale proceeds - Offering price) / Offering price

Here,

NAVinitial = Offering price * (1 - Front-end load)

= $34.20 * (1 - 5%)

NAVinitial = $32.49

 

NAVfinal = NAVinitial * (1+(Dividend - Operating Expense))

 = $32.49 * (1+(7% - 1.03%))

NAVfinal = $34.43

 

Sale proceeds = NAVfinal * (1 - Back-end load)

 = $34.43 *(1 - 3%)

Sale proceeds = $33.3971

 

Total return = ($33.3971 - $34.20 ) / $34.20

Total return = -2.35%