1. Assume that an open-end fund has a portfolio worth $525 million, liabilities totaling $25 million, and 20 million shares outstanding. The fund charges an expense ratio of 1.5 percent and 12b-1 fees equal to 0.5%.
A. What is the net asset value (NAV)?
B. Assume that, in a typical year, the fund sells $100 million worth of stock but purchases $110 million. What is the portfolio turnover ratio?
C. Assume that over the previous year, the fund paid dividends (to investors) totaling $5 million, paid out $7.5 million in capital distributions, and earned a return of 3% on its portfolio. What was the rate of return?
2. Assume that Fund A charges a front-end load of 6%, an expense ratio of 0.4% and no 12b-1 fees. Assume that Fund B charges no front-end load, 12b-1 fees of 0.5% an expense ratio of 1% and back-end fees of 2%. If both funds’ portfolios have an average return of 12%, which is the better investment after 5 years given an initial investment of $5,000?