A year ago, the Alpine Growth Fund was being quoted at an NAV of $21.50 and an offer price of $23.35; today, it’s being quoted at $23.04 (NAV) and $25.04 (offer). Use the approximate yield formula or a handheld financial calculator to find the rate of return on this load fund; it was purchased a year ago, and its dividends and capital gains distributions over the year totaled $1.05 a share. (Hint: As an investor, you buy fund shares at the offer price and sell at the NAV.)
To find the rate of return on the Alpine Growth Fund, we can use the following formula:
Rate of Return = (Ending Value - Beginning Value + Distributions) / (Beginning Value)
Where:
- Ending Value = NAV at the end of the year, which is $23.04
- Beginning Value = NAV at the beginning of the year, which is $21.50
- Distributions = Dividends and capital gains distributions over the year, which is $1.05
Let's substitute these values into the formula:
Rate of Return = ($23.04 - $21.50 + $1.05) / ($21.50)
Rate of Return = $2.59 / $21.50
Rate of Return ≈ 0.1209 or 12.09%
Therefore, the approximate rate of return on the Alpine Growth Fund is approximately 12.09%.
To find the approximate rate of return on the load fund, we can use the formula:
Yield = (NAV + Dividends) / Offer Price - 1
Using the given information:
NAV (1 year ago): $21.50
Offer Price (1 year ago): $23.35
NAV (today): $23.04
Offer Price (today): $25.04
Dividends and capital gains distributions: $1.05
Substituting the values into the formula, we have:
Yield = ($23.04 + $1.05) / $25.04 - 1
Yield = $24.09 / $25.04 - 1
Yield = 0.9623 - 1
Yield = -0.0377
The approximate rate of return on this load fund over the past year is approximately -3.77%.
Note: The negative sign indicates a negative rate of return, meaning the investment has lost value.