The AllState Mutual Fund has the following 5year record of p

The All-State Mutual Fund has the following 5-year record of performance: Find this no-load fund\'s 5-year (2012-2016) average annual compound rate of return. Also find its 3-year (2014-2016) average annual compound rate of return. If an investor bought the fund in 2012 at $10.08 a share and sold it 5 years later (in 2016) at $15.76, how much total profit per share would she have made over the 5-year holding period? This no-load fund\'s 5-year (2012-2016) average annual compound rate of return is %. (Round to two decimal places.)

Solution

1. 5 year average annual compound rate of return :

NAV at the end of 2016 = 15.76. NAV at the start of 2012 = 10.08

Thus 15.76 = 10.08*(1+r)^5

Or, 1.563492 = (1+r)^5

Or r = 9.35%

2. 3 year average annual compound rate of return :

NAV at the start of 2014 = 10.73. NAV at the end of 2016 = 15.76

Thus 15.76 = 10.73*(1+r)^3

Or, 1.46878 = (1+r)^3

Or r = 13.67%

3. Value of 1 share (or 1 unit) of the mutual fund at the start of 2012 = 10.08

NAV at the end of 2016 = 15.76

Thus profit = 15.76-10.08

= $5.68