Question

Suppose you own a 10 percent interest in a pooled investment vehicle (The fund) with 5 million shares outstanding. Each share’s market price is $64. The fund has total liabilities of 25 million. A. What is the market value of your interest in the fund? B. What is the fund’s net asset value? C. What is your evaluation of market sentiment about the fund’s value?

Answer 1

1) Market value of our interest in the fund: $32,000,000

Working: 10% X 5,000,000 shares X $64 = 32,000,000

2) Net Asset value of the fund: 295,000,000

Working: 5,000,000 shares X $64 - 25,000,000 = 295,000,000

3) Market sentiment refers to the overall attitude of investors in the anticipation of price development in the market. Typically the investors describe market sentiment as bullish or bearish . The bulls are termed to be in control when stock prices are increasing; and when the bears are in control, stock prices are decreasing. Thus an increase in prices displays the bullish market sentiment, while decreasing prices displays the bearish market sentiment. In the current scenario as upward movement in prices is expected wherein the company's liabilities are just 25 million out of the total value of 320 million thus indicates that the it does not have much dependency on outside funds for the operations of the entity