Three years ago, an ETF was initiated with 1 million shares in 10 stocks each wi

Question

Three years ago, an ETF was initiated with 1 million shares in 10 stocks each with a market value of $10. The total market value of the ETF was then $100 million (1 million shares * 10 stocks * $10). The ETF issued 20 million shares which originally sold for $5 a share. Last year, Nancy purchased 100,000 shares for $7 a share. The price has now increased to $12 a share, and Nancy is considering redeeming her shares. Assume none of the original shares have been sold or redeemed. If Nancy redeems her shares, her cost basis when she sells the shares is A: $ 200,000 B: $ 500,000 C: $ 700,000 D: $1,000,000 E: $1,200,000

Explanation / Answer

Cost of redeemed shares = [(12 -7 ) = 5 *100,000 =   500,000. This amount is invested to acquire new shares ,which is being now sold. Therefore, option B is correct answer.

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