You purchased 5, 600 shares in the New Pacific Growth Fund on January 2, 2010, a

Question

You purchased 5, 600 shares in the New Pacific Growth Fund on January 2, 2010, at an offering price of $48.3 per share. The front-end load for this fund is 5 percent, and the back-end load for redemptions within one year is 2 percent. The underlying assets in this mutual fund appreciate (including reinvested dividends) by 8 percent during 2010, and you sell back your shares at the end of the year. If the operating expense ratio for the New Pacific Growth Fund is 1.59 percent, what is your total return from this investment? (Negative amounts should be indicated by a minus sign. Round your answer to 2 decimal places. Omit the "%" sign in your response.) Total return %

Explanation / Answer

Offer price = $48.3 , front load = 5% means for each $48.3 you submit you will get one share whose value = 48.3 (1- 5%) = 48.3 (0.95) = $45.885

Therefore , worth of 5,600 shares = $45.885 * 5600 = $256,956

During the year the value of shares grow by 8% , but the firm keeps 1.59% as a part of managment fees so the year end value = $45.885(1+8%) = 45.885 (1.08) = $49.5558

Per share managment or operating fees = $49.5558 * 1.59% = 49.5558 * 0.0159 = $0.7879

Net value = $49.5558 - $0.7879 =$48.7678

And if we sell the shares within 1 year the additional backened load = 2%

Therefore, net proceeds are ; $48.7678 (1- 2%) = 48.7678(0.98) = $47.7924

Therefore ,return within a year =[ $47.7924 - $48.3 ] / 48.3 = - 0.0105 or - 1.05% which is the required return on investment

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