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CFA Level I · CFA Level I Exam · Returns of Financial Assets and Instruments

A fund reports a gross return of 9.0% for the year. Management fees and administrative expenses charged to the fund totaled 1.2% of assets, and the fund paid trading costs that were already deducted in arriving at the gross figure. The fund's net return is most likely:

The net return is 7.8%. Net return equals gross return less management and administrative fees, so 9.0% minus 1.2% gives 7.8%. Trading costs are already reflected in the gross figure and must not be deducted a second time.

  1. A7.8%Correct
  2. B9.0%
  3. C10.2%

Explanation

Net return is gross return minus managerial and administrative expenses: 9.0% - 1.2% = 7.8%. Trading costs were already deducted in the gross figure, so deducting them again would be wrong. Adding the fees (10.2%) reverses the sign, and 9.0% ignores the fees.

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