Question

At the beginning of the year, you invested $7,500 in a no-load mutual fund with a NAV of $30.00. At the end of the year, the fund distributed $1.05 per share in short-term earnings and $3.00 per share in long-term earnings. The end of year NAV was $24.75. What was your annual rate of return on this investment?

Group of answer choices

-4.00 percent

16.90 percent

10.80 percent

14.20 percent

-1.96 percent

2.A tax exempt money market fund has an annual return of 3.76 percent. What is your equivalent taxable rate if you are in a 28 percent marginal tax bracket?

6.81 percent

3.15 percent

3.38 percent

6.11 percent

5.22 percent

Answer 1

1)

Total investment

7500

NAV

30

Number of shares

7500/30

Number of shares

250

Short-term earnings per share

1.05

Total short-term earnings

250*1.05

Total short-term earnings

262.5

Long-term earnings per share

3

Total short-term earnings

250*3

Total long-term earnings

750

end of the year NAV

24.75

Value of investment at end of

the year

24.75*250

Value of investment at end of

the year

6187.5

Annual rate of return on

investment

(Value of investment at end of the year + Total short-term earnings + Total long-term earnings - Total investment)/Total investment

Annual rate of return on

investment

-0.04

The annual rate of return on this investment is -4.00%.

2)	equivalent taxable rate = tax exempt money market return/ (1-t)
	where t is the marginal tax rate that is .28.
	tax exempt money market return = .0376
	equivalent taxable rate = .0376/(1-.28)
	equivalent taxable rate = .0376/(.72)
	equivalent taxable rate = .05222.
	The equivalent taxable rate is 5.22%.