Question

A mutual fund has $2 million in cash and $6 million invested in securities. It currently has 1 million shares outstanding.

a.

What is the NAV of this fund? (Round your answer to 2 decimal places. (e.g., 32.16))

NAV $ per share

b.

Assume that some of the shareholders decide to cash in their shares of the fund. How many shares, at its current NAV, can the fund take back without resorting to a sale of assets?

Number of shares

c-1.

As a result of anticipated heavy withdrawals, it sells 25,000 shares of IBM stock currently valued at $36. Unfortunately, it receives only $34 per share. What is the net asset value after the sale? (Round your answer to 2 decimal places. (e.g., 32.16))

Answer 1

a. NAV = 8 per share

b. 250.000 shares

c. 7.95

Step-by-step explanation:

a. NAV = Market value of shares/number of shares = $8m/1m = $8 per share

b. At the current NAV, it can absorb up to $2 million, or 250,000 shares.

c-1. Its loss by selling 25,000 shares of IBM at $34 instead of $36 = -$2 x 25,000 = -$50,000.

New NAV = $7,950,000 /1m = $7.95