Question

Open-end Fund A has 171 shares of ATT valued at $38 each and 33 shares of Toro valued at $78 each. Closed-end Fund B has 78 shares of ATT and 75 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 $39.25 and the price of Toro stock declines to $75.292, 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 158 shares of ATT valued at $38 are added to Fund A. The funds needed to buy the new shares are obtained by selling 662 more shares in Fund A. What is the effect on Fund A’s NAV if the prices remain unchanged from the original prices?

Answer 1

a). NAV of fund = [Total assets - Total Liabilities] / Outstanding shares of fund

NAV of Open-end Fund A = [(171 shares * $38) + (33 shares * $78) / 1,000 shares] = $9,072 / 1,000 = $9.072

NAV of Closed-end Fund B = [(78 shares * $38) + (75 shares * $78) / 1,000 shares] = $8,814 / 1,000 = $8.814

b). NAV of Open-end Fund A = [(171 shares * $39.25) + (33 shares * $75.292) / 1,000 shares]

= $9,196.39 / 1,000 = $9.1964

Change in NAV of Open-end Fund A as a result of price changes = ($9.1964 - $9.072) / $9.072 = 1.37%

NAV of Closed-end Fund B = [(78 shares * $39.25) + (75 shares * $75.292) / 1,000 shares]

= $8,708.4 / 1,000 = $8.7084

Change in NAV of Closed-end Fund B as a result of price changes = ($8.7084 - $8.814) / $8.814 = -1.20%

c). Total ATT shares = Existing shares of ATT + New shares added = 171 shares + 158 shares = 329 shares

NAV of Open-end Fund A = [(329 shares * $38) + (33 shares * $78) / (1,000 + 662) shares]

= $15,076 / 1,662 = $9.0710