Question

1. A person can earn 12 percent by investing in equity shares on his own. Now he is considering a
recently announced equity based mutual fund scheme in which initial expenses 5 percent and
annual recurring expenses are 1.5 percent. How much should the mutual fund earn to provide
him a return of 10 percent ?
(a) 11.04%
(b) 12.02%
(c) 12.63%
(d) 12.98%​

Answer 1

Answer:

Option (b) 12.02% is the correct alternative.

Step by step answer:

Return on equity= (return on mutual fund - recurring expenditure)*(1-initial expenses)

10=(return on MF - 1.5)*(1-0.05)

return on MF= 10/0.95 + 1.5

= 12.02%

Answer 2

Answer:

(b) 12.02%

Explanation:

Return on equity (ROE) is an important financial metric that investors can use to determine how efficient management is at utilizing equity financing provided by shareholders. It compares the net income to the equity of the firm.

      Return on equity (ROE)=$\frac{NETINCOME}{SHAREHOLDEREQUITY}$

A person can earn 12 percent by investing in equity shares on his own.

Now he is considering a recently announced equity based mutual fund scheme in which initial expenses 5 percent and

annual recurring expenses are 1.5 percent.

The mutual fund earn to provide him a return of 10 percent .

  RETURN ON EQUITY (ROE)=(RETURN ON MUTUAL FUND -RECCURING EXPENDITURE)*(1-INITIAL EXPENSES)

     

$10=(RETURN ON MUTUAL FUND-1.5)*(1-0.05)$

$RETURN ON MUTUALFUND=\frac{10}{0.95} +1.5$

                                                  $=12.02$%

    The mutual fund earn to provide him a return of 10 percent  IS 12.02%  

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