CFA Level I · CFA Level I Exam · Types of Financial Returns
A fund earned a gross return of 10.0% for the year. It charged a management fee of 1.2% and other administrative expenses of 0.3% of assets, both expressed as annual percentages of assets and deducted from the return. The net return is closest to:
The net return is about 8.5%. Deduct both the 1.2% management fee and the 0.3% administrative expenses from the 10.0% gross return: 10.0 − 1.2 − 0.3 = 8.5%. Adding the costs or ignoring one of them gives the wrong figures.
- A8.5%Correct
- B9.5%
- C11.5%
Explanation
Net return = gross return − management fee − administrative expenses = 10.0% − 1.2% − 0.3% = 8.5%. The 11.5% option wrongly adds the costs, which is a sign error, and 9.5% omits the second expense item.
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