A mutual fund has 600 shares of General Electric, currently trading at $18, and
ID: 2723257 • Letter: A
Question
A mutual fund has 600 shares of General Electric, currently trading at $18, and 600 shares of Microsoft, Inc., currently trading at $35. The fund has 1,500 shares outstanding.
What is the NAV of the fund?(Round your answer to 2 decimal places. (e.g., 32.16))
If investors expect the price of General Electric to increase to $25 and the price of Microsoft to decline to $19 by the end of the year, what is the expected NAV at the end of the year?(Round your answer to 2 decimal places. (e.g., 32.16))
Assume that the price of General Electric shares is realized at $25. What is the maximum price to which Microsoft can decline and still maintain the NAV as estimated in (a)? (Do not round intermediate calculations.)
Explanation / Answer
NAV = net asset / no. of units
= (600 x 18 + 600 x 35) / 1500
= 31,800 / 1500
= 21.20
New NAV = ( 25 x600 + 19 x600)/1500
= 26400 / 1500
= 17.60
NAV = net asset / no. of units
21.20 = ( 600 x 25 + 600 x P)/1500
31800 = 15000 + 600 P
P = (31800 -15000)/600
= 28
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