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You invest in an open-ended mutual fund with an MER of 0.5%. One year ago, the fund’s NAV was $20. This past year, the stocks held by the fund increased by 10% on average. What is the NAV today? Do not include the $ sign and answer to the nearest $0.01.

Question

You invest in an open-ended mutual fund with an MER of 0.5%. One year ago, the fund’s NAV was 20.Thispastyear,thestocksheldbythefundincreasedby1020. This past year, the stocks held by the fund increased by 10% on average. What is the NAV today? Do not include the sign and answer to the nearest $0.01.

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Solution

To calculate the new NAV (Net Asset Value), we first need to calculate the increase in the fund's value over the past year.

  1. Calculate the increase in the fund's value: The stocks held by the fund increased by 10% on average. So, the increase in the fund's value is 10% of 20,whichis20, which is 2.

  2. Add the increase to the original NAV: The original NAV was 20.Addingtheincreaseof20. Adding the increase of 2 gives us a new NAV of $22.

  3. Subtract the MER (Management Expense Ratio): The MER is 0.5% of the fund's value. So, the MER is 0.5% of 22,whichis22, which is 0.11.

  4. Subtract the MER from the new NAV: Subtracting the MER of 0.11fromthenewNAVof0.11 from the new NAV of 22 gives us a final NAV of $21.89.

So, the NAV today is $21.89.

This problem has been solved

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