Consider a mutual fund with $200 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 million. The stocks included in the fund's portfolio increase in price by 8%, but no securities are sold and there are no capital gains distributions. The fund charges 12b-1 fees of 1%, which are deducted from portfolio assets at year-end. a. What is the fund's net asset value at the start and end of the year?

At start = $20/share

At end = $21.384

Explanation:

DATA

ASSets at the start = $200m

Outstanding shares = 10m

Dividend income at the end = $2m

Gain in price = 8%

12b-1 fees = 1%

A.

Net assets at the start can be calculated by dividing assets at the start by outstanding shares

Net Assets value at start = Assets at start/Outstanding shares

Net Assets value at start = $200m/10m

Net Assets value at start = $20/share

Net Assets value at the end can be calculated by multiplying gain price with 12b-1 fees

Net assets value at the end = Gain Price x (1-12b-1 fees)

Net Assets value at the end = ($20x$1.08) x (1 - 0.01)

Net Assets value at the end = $21.6 x 0.99

Net Assets value at the end = $21.384

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