A mutual fund has 400 shares of General Electric, currently trading at $20, and

Question

A mutual fund has 400 shares of General Electric, currently trading at $20, and 400 shares of Microsoft, Inc., currently trading at $36. The fund has 1,200 shares outstanding. a. What is the NAV of the fund? b. If investors expect the price of General Electric to increase to $24 and the price of Microsoft to decline to $18 by the end of the year, what is the expected NAV at the end of the year? c. Assume that the price of General Electric shares is realized at $24. What is the maximum price to which Microsoft can decline and still maintain the NAV as estimated in (a)?

Explanation / Answer

a)

Tota Net Assets=400*$20+400*$36=$22,400

NAV=Net Assets/no of Shares=$22,400/1,200=$18.67

b).

IF it like

then Total Net assets=400*$24+400*$18=$16,800

NAV=$16,800/1,200=$14

c)

The maximum price to which microsoft can decline and still maintain the NAV as estimated in (a)

=($22,400-400*$24)/400=$12,800/1,200=$32

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