You purchased shares of a mutual fund at an offering price of $89.95 per share a

Question

You purchased shares of a mutual fund at an offering price of $89.95 per share at the beginning of the year and paid a front-end load of 3.25%. If the securities in which the fund invested increased in value by 13.50% during the year, and the fund's expense ratio was 2.00%, what is your rate of return if you sold the fund at the end of the year? Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35

Explanation / Answer

Given mutual fund offering price is $89.95 per share.

Front end load is 3.25% means we are giving money in front to mutual fund so 3.25% of $89.95 is $2.9233

So effective price for us is $92.873

Value increased by 13.50% means 13.50% of 89.95 i.e $ 102.09

Fund expense ratio is 2%. So after deducting 2% from 102.09 i.e $ 100.0482

So our rate of return we should calculate from our cost price  $92.873 and our selling price $ 100.0482

Rate of return =(100.0482-92.873)/92.873

=0.0772

=7.72%

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