An investor is considering a 5-year investment of TZS 350 million in a mutual fund that uses an index tracker fund. The index tracker fund has no initial charge, but charges an annual management fee of 0.2% of the value of the fund and average annual share dealing costs of 0.1%.

The long term average real rate of return on a balanced portfolio of shares has been 3% p.a., and the performance is expected to continue for the next 5 years. On the assumption that the funds match the general market performance:

a). What do you expect the value of the index tracker fund to be after 5 years?

b). What are the effects of the expenses on the expected average annual return of the tracker fund