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An investor purchases 1000 worth of units in a mutual fund whose units are
valued at 4.00. The investment dealer takes a 9% “front-end load” from the
gross payment. One year later the units have a value of 5.00 and the fund
managers claim that the “fund’s unit value has experienced a 25% growth
in the past year.” When units of the fund are sold by an investor, there is a
redemption fee of 1.5% of the value of the units redeemed.
(a) If the investor sells all his units after one year, what is the effective annual
rate of interest of his investment?
(b) Suppose instead that after one year the units are valued at 3.75. What
is the return in this case?

Answer: (a) 12.04% (b) −15.97%

2. Initial investment = # of units * initial unit value
1000 units * \$4/unit = \$4000

Also calculate # of units actually purchased
1000 units * (1 - .09) = 910 units

a) End of period value per unit is \$5.
Value = 910 units * \$5/unit = 4481.75
Redemption value = 4550 * (1-.015) = 4481.75
IRR = ending return / initial investment -1 = 4481.75 / 4000 -1
= 12.04%

I leave b) for you.

3. Thank you very much!
it really helps me a lot