There is a mutual fund that you are interested in, however, the fund owes $23 mi

Question

There is a mutual fund that you are interested in, however, the fund owes $23 million dollars to Goldman Sachs for brokerage consulting fees and it owes $77 million in lease obligations, debt obligations, and investment advisory fees. The mutual fund is worth $600 million and has 35 million shares outstanding, what is your anticipated price per share or NAV?

2. The mutual fund paid $10million to Goldman Sachs during the month and reduced its other obligations by $27million. The mutual fund is now at $695 and has 50 million shares outstanding, what is your anticipated price per share or NAV?

3. Use the initial NAV, the end of month NAV, with income distributions of $3.05 and capital gains distributions of $.80 to calculate Rate of Return. What is the month’s Rate of Return and does it make sense to invest in the mutual fund given what the trend indicates?

Explanation / Answer

1.Net assets value = (total assets -outstanding liabilities) / Shares outstanding

Total assets= $ 600 millions

outstanding liabilities= $ 77 +$23 = $ 100 millions

Shares outstanding= $ 35 millions

Now substitute values in the above formula

NAV=(600-100)/35

=$ 14.29 per share

2.anticipated price per share or NAV=($ 695-$ 63)/50

= $ 12.64 per Share

3.Rate of Return = {( NAV at the end of the period-NAV at the beggining of the period )+capital gain+income distribution}/NAV at the beggining of the period* 12/no of months

={(13.36-12.64)+3.05+0.8}/13.36*100

=34% (monthly rate)

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