Final answer:
To find the ask price for an open-end investment company, calculate the present value of future profits using a discount rate, sum these values, and divide by the number of shares. For example, a total present value of 51.3 million divided by 200 shares gives an ask price of approximately $256,500 per share. An IPO sets the initial ask price, the rate of return varies, and decisions are made by a board of directors.
Step-by-step explanation:
Finding the Ask Price in Open-end Investment Companies
To find the ask price or public offering price (POP) of an open-end investment company, typically one would refer to the fund's prospectus or financial websites that provide such information. However, if you are calculating the ask price based on data such as future expected profits and present value calculations, the process involves several steps. First, you would calculate the present value of future profits using the appropriate discount rate, which reflects the cost of capital or the required rate of return. In this case, a 15% interest rate is mentioned. Once you have the present values of profits for different periods, you sum them up to find the total present value. Finally, you divide the total present value by the number of shares to find the ask price per share. It's important to note that in practice, the ask price reflects many factors, including market demand, investment management fees, and operational costs.
For instance, if the present value of total profits is calculated to be 51.3 million and there are 200 shares, dividing these figures gives an ask price of approximately $256,500 per share. Remember, this is a simple example and in reality establishing an ask price for shares involves complex analysis.
When a company goes public through an Initial Public Offering (IPO), they set an offering price which becomes the ask price when the stock starts trading. The rate of return promised to investors can vary and is not a fixed amount, rather it depends on the company's future performance. Decision-making in a company with many shareholders generally falls to an elected board of directors.