8 Sam Johnson owned 5000 shares of the Argus Fund that was v

8) Sam Johnson owned 5,000 shares of the Argus Fund that was valued at $23 per share on January 1. During a one-year period, he was entitled to distributions of $2,720 in dividends and $6280 in capital gains, all of which were reinvested in the fund by purchasing new shares at an average price of $25 per share. Total operating expense was 1.25% of end-of-year NAV. By the end of the year, the fund’s price per share was $24. Calculate Sam’s rate of return on his investment in that year (ignore taxes)?

Solution

Value of shares owned in the beginning of the year = 5000*$23 = $115000

Total distributions during a one year period = $2720(dividends) + $6280(capital Gains) = $9000

Total shares bought from the distributions = 9000/25 = 360

Total money invested = 115000 + 9000 = $124000

Value of shares at the end of the year = 5360*24 = $128640

Total operating expense = 128640*1.25% = $1608

Total rate of return = (128640-1608-124000)/124000 = 0.2445 or 2.45%.