You have invested in a mutual fund; you are receiving statements summarizing the

Question

You have invested in a mutual fund; you are receiving statements summarizing the activity of your account. One critical term in the statement is the Net Asset Value (NAV). The NAV is the total value of mutual fund’s stocks, bonds, cash, and other assets minus liabilities divided by the number of shares outstanding. The fund you are analyzing is an open-end mutual fund consisting of several stocks only. You are assigned to calculate NAV and costs of funds the following scenarios. In addition, in this case you will notice that due to capital appreciation and change in investment size, the NAV will be affected.

Suppose the mutual fund contains 390 shares of Stock A, currently trading at $48.39, 1000 shares of Stock B currently trading at $43.70, and 2690 shares of stock C, currently trading at $13.00. The mutual fund has 15,000 shares outstanding held by investors.

1.    Calculate the NAV for the fund.

2.    If the price of stock A increases to $68 and share price of B decreases to $36.75 and the stock C price increases to $23.91, how will the NAV be affected?

3.    Calculate the yield on this investment.

Explanation / Answer

1.

2.

If prices increases NAV will be increased by $ 2 per unit(8.51-6.50) or 31%(2/6.5*100)

3.Yield on investment =(NAV1-NAV0)/NAV0

=(8.51-6.50)/6.50

=31%

Stock No of share Price($) No of share*Price($) A 390 48.39 18872.1 B 1000 43.7 43700 C 2690 13 34970 Total assets 97542.1 No of units outstanding 15000 NAV $ 6.50

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