4. An investor purchases a mutual fund share for $100. The fund pays dividends of $3, distributes a capital gain of $4, and charges a fee of $2 when the fund is sold one year later for $105. What is the net rate of return from this investment?
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To find the net rate of return from this investment, we need to calculate the total amount received and all the expenses incurred.
First, let's calculate the total amount received:
- Dividends received: $3
- Capital gain distribution received: $4
- Selling price of the fund: $105
Total amount received = Dividends + Capital Gain + Selling Price = $3 + $4 + $105 = $112
Next, let's calculate the total expenses:
- Initial purchase price of the fund: $100
- Fee charged when selling: $2
Total expenses = Initial Purchase Price + Selling Fee = $100 + $2 = $102
Now, let's calculate the net rate of return:
Net rate of return = ((Total Amount Received - Total Expenses) / Initial Purchase Price) * 100
Net rate of return = (($112 - $102) / $100) * 100 = ($10 / $100) * 100 = 10%
Therefore, the net rate of return from this investment is 10%.