In: Finance
Open-end Fund A has 191 shares of ATT valued at $48 each and 43
shares of Toro valued at $88 each. Closed-end Fund B has 88 shares
of ATT and 85 shares of Toro. Both funds have 1,000 shares
outstanding.
a. What is the NAV of each fund using these
prices? (Round your answers to 3 decimal places. (e.g.,
32.161))
b. If the price of ATT stock increases to $49.25
and the price of Toro stock declines to $85.292, how does that
impact the NAV of both funds? (Negative amounts should be
indicated by a minus sign. Do not round intermediate calculations.
Round your answers to 2 decimal places. (e.g.,
32.16))
c. Assume that another 168 shares of ATT valued at
$48 are added to Fund A. The funds needed to buy the new shares are
obtained by selling 623 more shares in Fund A. What is the effect
on Fund A’s NAV if the prices remain unchanged from the original
prices?
Solution a | |||||||
Description | Fund A | Fund B | |||||
ATT shares | |||||||
No of shares | 191 | 88 | |||||
Shrae price | $ 48 | $ 48 | |||||
Share value | $ 9,168 | $ 9,168 | $ 4,224 | $ 4,224 | |||
Toro shares | |||||||
No of shares | 43 | 85 | |||||
Shrae price | $ 88 | $ 88 | |||||
Share value | $ 3,784 | $ 3,784 | $ 7,480 | $ 7,480 | |||
Total Fund value | $ 12,952 | $ 11,704 | |||||
No of shares in fund | 1,000 | 1,000 | |||||
NAV for each fund (Fund value/No of shares) | $ 12.952 | $ 11.704 | |||||
Solution b | |||||||
Description | Fund A | Fund B | |||||
ATT shares | |||||||
No of shares | 191 | 88 | |||||
Shrae price | $ 49.25 | $ 49.25 | |||||
Share value | $ 9,406.75 | $ 9,406.75 | $ 4,334.00 | $ 4,334.00 | |||
Toro shares | |||||||
No of shares | 43 | 85 | |||||
Shrae price | $ 85.292 | $ 85.29 | |||||
Share value | $ 3,667.56 | $ 3,667.56 | $ 7,249.82 | $ 7,249.82 | |||
Total Fund value | $ 13,074.31 | $ 11,583.82 | |||||
No of shares in fund | 1,000 | 1,000 | |||||
NAV for each fund (Fund value/No of shares) | $ 13.074 | $ 11.584 | |||||
NAV before price change | $ 12.9520 | $ 11.7040 | |||||
NAV after price change | $ 13.0743 | $ 11.5838 | |||||
Change in price | $ 0.1223 | $ (0.1202) | |||||
Solution C | |||||||
Description | Fund A | ||||||
ATT shares | |||||||
No of shares | 191 | ||||||
Shrae price | $ 48.00 | ||||||
Share value | $ 9,168.00 | $ 9,168.00 | |||||
New shares purchased of ATT | |||||||
No of shares | 168 | ||||||
Shrae price | $ 48.000 | ||||||
Share value | $ 8,064.00 | $ 8,064.00 | |||||
Total Fund value | $ 17,232.00 | ||||||
No of shares in fund (1000+623) | 1,623 | ||||||
NAV for fund A (Fund value/No of shares) | $ 10.617 | ||||||