You purchased 3,000 shares in the New Pacific Growth Fund on January 2, 2010, at

Question

You purchased 3,000 shares in the New Pacific Growth Fund on January 2, 2010, at an offering price of $63.10 per share. The front-end load for this fund is 5 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 4 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 1.85 percent, what is your total return from this investment? Assume that the annual expense ratio is netted out of the fund's return.

Explanation / Answer

3000 shares @ $ 63.10 costs =3000*63.10=$ 189300

the front -end load is 5% so the net amount that will be invested would be =$189300- $9465(189300*5%)=$179835

so the appreciation during the year 2010 is 4%

on $ 179835 the total return at 4% would be =179835*4% =>$ 7193.40

so at the end of 2010 the amount would capital+return => 179835+7193.40=187028.40

the exit load on redumption=187028.40*1%= 1870.30 => the proceeds at redumption=187028.40-1870.30=185180.10

so the starting investment = $ 189300

the investmented amount at the end of 2010 is 185180.10 so there is a loss in this investment(189300-185180.10)

amounting to $ 4141.90 so the operating ratio is (9465+1870.30)=11335.30/4141.90=2.74

.

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