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 $0\mathrm{.}5\%$ of the value of the fund and average annual share dealing costs of $0\mathrm{.}2\%.$

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 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?