Question

Twelve months ago, you purchased the shares of a no-load mutual fund for $22.25 per share. The fund distributed cash dividends of $0.60 and capital gains of $1.60 per share. If the net asset value of the fund is currently $24.45, what was your annual return on the investment? Round your answer to two decimal places If the value of the shares had been $21.18, what would have been your annual return? Round your answer to two decimal places.

Answer 1

Annual Return on Investment = (Dividend distribution + Capital gains distribution + Change in net asset value) / Beginning Net Asset Value

Where Change in net asset value = Ending Net Asset Value - Beginning Net Asset Value

Dividend distribution = $0.60

Capital gains distribution = $1.60

Beginning Net Asset Value = $22.25

Ending Net Asset Value = $24.45

Change in net asset value = $24.45 - $22.25

= $2.20

Therefore Annual Return on Investment =  ($0.60 + $1.60 + $2.20) / $22.25

= 4.40 / 22.25

= 0.1978 or

19.78 % (Rounded two decimal places)

Answer to the 2nd part

Dividend distribution = $0.60

Capital gains distribution = $1.60

Beginning Net Asset Value = $22.25

Ending Net Asset Value = $21.18

Change in net asset value = $21.18 - $22.25

= - $1.07

Therefore Annual Return on Investment =  ($0.60 + $1.60 + (- $1.07) / $22.25

= 1.13 / 22.25

= 0.0508 or

5.08 % (Rounded two decimal places)