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An entrepreneurial investor in Arusha is considering a 2 - year investment of TZS 2 5 0 million in a foreign mutual fund that uses

An entrepreneurial investor in Arusha is considering a 2-year investment of TZS 250 million in a foreign mutual fund that uses an index tracker fund. The index tracker fund has no initial charge but charges an annual management fee of 0.5% of the value of the fund and average annual share dealing costs of 0.2%.
Based on the latest information given on the Financial Times newspaper, the long term average real rate of return on a balances portfolio of shares is 3.5% p.a. and the performance is expected to continue for the next 2 years.
On the assumption that funds match the general market performance
a) Briefly explain how an index tracker fund works?
b) What is the annual total expense ratio?
c) What is the expected value of the index tracker fund after the 2 years?
d) What are the effects of the expenses on the expected average annual return of the tracker fund?

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