Question

City Street Fund has a portfolio of $490 million and liabilities of $10 million.

a. If there are 30 million shares outstanding, what is the net asset value?

Net Asset Value:

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

Portfolio value ___________ to _________ million

b-2. If a large investor redeems 1 million shares, what happens to shares outstanding? (Enter your answer in millions.)

Portfolio value ___________ to _________ million

b-3. If a large investor redeems 1 million shares, what is the net asset value?

Net Asset Value:

Answer 1

Ans (a):

Net Asset Value: It is the total net value of a fund mentioned on per share or per unit basis. Mathematically, net asset value can be calculated as under:

Net Asset Value = (Total Assets - Total Liabilities) / Outstanding shares

So, in this case net asset value can be calculated as under:

Ans (b)

If 1 million shares are redeemed, then the fund have to make a payment of $ 16 million to the share holder. So, the new calculation of net asset value will be as under:

b-1: If 1 million shares are redeemed, the portfolio value decreases from $490.00 to $474.00.

b-2: If 1 million shares are redeemed, the shares outstanding reduces from 30 million to 29 million.

b-3: If 1 million shares are redeemed, the net asset value remains the same at $16.00.