City Street Fund has a portfolio of $415 million and liabilities of $15 million. a. If...

City Street Fund has a portfolio of $415 million and liabilities of $15 million.

a. If there are 80 million shares outstanding, what is net asset value?

Net asset value $

b-1. If a large investor redeems 3 million shares, what happens to the portfolio value? (Enter your answer in millions.)

Portfolio value (Click to select)increasesdecreases to $ million.

b-2. If a large investor redeems 3 million shares, what happens to shares outstanding? (Enter your answer in millions.)

Shares outstanding (Click to select)increasesdecreases to million.

b-3. If a large investor redeems 3 million shares, what is net asset value?

Net asset value $

Expert Solution

Solution:

a.	Net Asset value = $5

Working Notes:

	Net Asset value = (Portfolio value - Liabilities )/No of shares outstanding
	Net Asset value = ($415 million -$15 million )/ 80 million
	Net Asset value = $400 million / 80 million
	Net Asset value = $5

b-1.	Portfolio value decreases to $ 400 million

Working Notes:

	Change in portfolio value = Net assets value x No of shares redeems
	Change in portfolio value = $5 x 3 million
	Change in portfolio value = $15 million

	So , portfolio value will decreases by redeem value = Old portfolio value - Change in portfolio value
		= $415 million - $15 million
		=$400 million

Notes:	Net asset value = $5 taken from a.

b-2.	Shares outstanding decreases to 77 million

Working Notes:

	New shares outstanding = old shares outstanding - no of shares redeem
		= 80 million - 3 million
		=77 million

b-3.	Net Asset value = $5



	Net Asset value = (new Portfolio value - Liabilities )/No of shares outstanding
	Net Asset value = ($400 million -$15 million )/ 77 million
	Net Asset value = $385 million / 77 million
	Net Asset value = $5


Please feel free to ask if anything about above solution in comment section of the question.

jeff jeffy answered 3 years ago

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