Question

Consider a mutual fund with $260 million in assets at the start of the year and 10 million shares outstanding. The fund invests in a portfolio of stocks that provides dividend income at the end of the year of $2.5 million. The stocks included in the fund's portfolio increase in price by 9%, but no securities are sold and there are no capital gains distributions. The fund charges 12b-1 fees of 1.00%, which are deducted from portfolio assets at year-end. What is the net asset value at the start and end of the year?

Answer 1

Answer: $26; $28.057

Explanation:

Total value = $260 million in assets

Shares outstanding = 10 million

Dividends = $2.5 million

Fund value at the start of the year = $\frac{Total\ value}{No.\ of\ shares\ outstanding}$

                                                         = $\frac{260}{10}$

                                                         = $26

Fund value at the end of the year:

Dividend per share = $\frac{Dividends}{No\ of\ shares}$

                                = $\frac{2.5}{10}$              

                                = $0.25

Price gain at 9% with deduction of 1% of 12b-1

Fund value at the end of the year = $26 × 1.09 × (1 - 0.01)

                                                        = $28.057