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Open-end Fund A has 201 shares of ATT valued at $53 each and 48 shares of Toro valued at $93 each
Open-end Fund A has 201 shares of ATT valued at $53 each and 48 shares of Toro valued at $93 each. Closed-end Fund B has 93 shares of ATT and 90 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 $54.25 and the price of Toro stock declines to $90.292, 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 173 shares of ATT valued at $53 are added to Fund A. The funds needed to buy the new shares are obtained by selling 607 more shares in Fund A. What is the effect on Fund A's NAV if the prices remain unchanged from the original prices? Answer is complete but not entirely correct. a. NAV of Fund A $ 15.117 NAV of Fund B $ 13.299 b. 0.80 Percentage change in NAV Fund A Percentage change in NAV Fund B Percentage change in NAV Fund A XOOO % (0.96) % (0.03) X % C.
Expert Solution
Solution to C
Answer is 0% as calculated below
We are told that 173 shares of ATT are added in Fund A and funds needed to buy the new shares are obtained from selling 607 more shares of Fund A. And since there is no change in prices of ATT and Toro, ideally there should not be any change in NAV of Fund A. Let us see how as below-
New composition of Fund A is as below-
|
Number of shares |
Share price |
Value |
|
|
(A) |
(B) |
(A x B) |
|
|
Shares of ATT |
374 |
53 |
19822 |
|
(201 + 173) |
|
|
|
|
Shares of Toro |
48 |
93 |
4464 |
|
|
|
|
|
|
Cash balance (details below) |
|
|
7.019 |
|
|
|
|
|
|
|
Total Fund Value |
24293.019 |
Cash balance = Proceeds from sale of 607 shares of Fund A – Purchase of 173 shares of ATT
= (607 x 15.117) – (173 x 53)
Cash balance = $ 7.019
Now new NAV of fund A = Total Fund Value .
New number of shares of Fund A
= 24293.019
(1000 + 607)
New NAV of Fund A = $ 15.117
So there is 0% change in value of Fund A
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