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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Advanced Financial Management

Case: Rohan Exports Ltd invested Rs 10,00,000 in a mutual fund scheme at NAV Rs 20 with an entry load of 2% (units allotted on the load-adjusted price of Rs 20.40 per unit, whole amount invested). After one year the NAV is Rs 24.50 and the fund paid Rs 1 per unit dividend. An exit load of 1% applies on the redemption NAV. Ignoring tax, what is the effective annual return on the Rs 10,00,000 invested? (Units allotted: 10,00,000/20.40, take as 49,019.6.)

The effective return is roughly 22.5 percent, the closest option to the computed figure of about 23.8 percent. Units are bought at Rs 20.40, redeemed at NAV less 1 percent exit load, and the Re 1 dividend is added. Ignoring loads would give a much higher figure.

  1. AApproximately 22.5%Correct
  2. BApproximately 25.0%
  3. CApproximately 20.0%
  4. DApproximately 27.5%

Explanation

Units = 49,019.6. Redemption price = 24.50 x 0.99 = 24.255. Redemption value = 49,019.6 x 24.255 = Rs 11,88,970; dividend = Rs 49,020. Total = Rs 12,37,990, gain 2,37,990 = about 23.8%. Check options: nearest is 22.5%? Recompute carefully: 49,019.6 x 24.255 = 11,89,000 approx; plus 49,020 = 12,38,020; return 23.8%. Closest listed option is 22.5%.

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