FRM Part I · FRM Exam Part I · Fund Management
A mutual fund begins the year with NAV of $40.00 per share. During the year it distributes $2.00 per share in dividends and NAV ends at $42.00. Its expense ratio of 1.0% is already reflected in the NAV. The investor reinvests nothing and simply sums the return. What is the total return for the year?
The total return is 10.0%. The NAV rose by $2.00 and the fund paid $2.00 in distributions, giving $4.00 of total gain on a $40.00 starting NAV. Expenses are already reflected in NAV, so nothing more is deducted.
- A5.0%
- B10.0%Correct
- C4.8%
- D7.5%
Explanation
Total return = (42 - 40 + 2)/40 = 4/40 = 10.0%. Using only the NAV change gives 5.0%, omitting the distribution. The expense ratio is already in NAV, so no further deduction applies.
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