13 nav 20000000010000000 20 dividends per share

Info icon This preview shows pages 3–5. Sign up to view the full content.

View Full Document Right Arrow Icon
13. NAV 0 = $200,000,000/10,000,000 = $20 Dividends per share = $2,000,000/10,000,000 = $0.20 NAV 1 is based on the 8% price gain, less the 1% 12b-1 fee: NAV 1 = $20 × 1.08 × (1 – 0.01) = $21.384 Rate of return = 20 $ 20 . 0 $ 20 $ 384 . 21 $ + = 0.0792 = 7.92% 14. The excess of purchases over sales must be due to new inflows into the fund. Therefore, $400 million of stock previously held by the fund was replaced by new holdings. So turnover is: $400/$2,200 = 0.182 = 18.2% 15. Fees paid to investment managers were: (0.007 × $2.2 billion) = $15.4 million Since the total expense ratio was 1.1% and the management fee was 0.7%, we conclude that 0.4% must be for other expenses. Therefore, other administrative expenses were: (0.004 × $2.2 billion) = $8.8 million 4-3
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
16. As an initial approximation, your return equals the return on the shares minus the total of the expense ratio and purchase costs: (12% 1.2% 4%) = 6.8% But the precise return is less than this because the 4% load is paid up front, not at the end of the year. To purchase the shares, you would have had to invest: $20,000/(1 0.04) = $20,833 The shares increase in value from $20,000 to: $20,000 × (1.12 0.012) = $22,160 The rate of return is: ($22,160 $20,833)/$20,833 = 6.37% 17. Suppose you have $1,000 to invest. The initial investment in Class A shares is $940 net of the front-end load. After four years, your portfolio will be worth: $940 × (1.10) 4 = $1,376.25 Class B shares allow you to invest the full $1,000, but your investment performance net of 12b-1 fees will be only 9.5%, and you will pay a 1% back-end load fee if you sell after four years. Your portfolio value after four years will be: $1,000 × (1.095) 4 = $1,437.66 After paying the back-end load fee, your portfolio value will be: $1,437.66 × 0 .99 = $1,423.28 Class B shares are the better choice if your horizon is four years. With a fifteen-year horizon, the Class A shares will be worth: $940 × (1.10) 15 = $3,926.61 For the Class B shares, there is no back-end load in this case since the horizon is greater than five years. Therefore, the value of the Class B shares will be: $1,000 × (1.095) 15 = $3,901.32 At this longer horizon, Class B shares are no longer the better choice. The effect of Class B's 0.5% 12b-1 fees accumulates over time and finally overwhelms the 6% load charged to Class A investors.
Image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern