Mod 9 12/19 Chpt 4 # 15, 17, 21, 24, 25 Chpt 19 # 5, 6, 9, 10, 13 15) The Closed Fund is a closed-end investment company with a portfolio currently worth $200 million. It has liabilities of $3 million and 5 million shares outstanding a) What is the NAV of the fund? b) If the fund sells for $36 per share, what is its premium or discount as a percent of NAV? 17) A close-end fund starts the year with a net asset value of $12.00. By year-end, NAV equals $12.10. At the beginning of the year, the fund is selling at 2% premium to NAV. By the end of the year , the fund is selling at a 7% discount to NAV. The fund paid year end distributions of income and capital gains of $1.50 a) What is the rate of return to an investor in the fund during the year? b) What would have been the rate of return to an investor who held the same securities as the fund manager during the year? 21) Consider a mutual fund with $200 million in assets at the start of the year and with 10 million shares outstanding. The fund invests in a portfolio of stocks and provides dividend income at the end of the year of $2 million. The stocks included in the fund’s portfolio increase in price by 8%, but no securities are sold, and there are no capital gains distributions. The fund charges 12b-1 fees of 1%, which are deducted from portfolio assets at year-end. a) What is net asset value at the start and end of the year? b) What is the rate of return for an investor in the fund? 24) You purchased 1,000 shares of the New Fund at a price of $20 per share at the beginning of the year. You paid a front-end load of 4%. The securities in which the fund invests increase in value by 12% during the year. The fund’s expense ratio is 1.2%. What is the rate of return on the fund if you sell your shares at the end of the year? 25) The Investments Funds sells Class A shares with a front-end load of 6% and Class B shares with 12b-1 fees of .5% annually as well as back-end load fees that start at 5% and fall by 1% for each full year the investor holds the portfolio (until the fifth year). Assume the portfolio rate of return net of operating expenses is 10% annually. a) If you plan to sell the fund after four years, are Class A or Class B share the better choice for you? b) What if you plan to sell after 15 years? 5) Suppose a US investor wishes to invest in a British firm currently selling for GBP 40 per share. The investor has $10,000 to invest, and the current exchange rate is $2/GBP a) How many shares can the investor purchase? b) Fill in the table below for rates of return after one year in each of the nine scenarios (three possible prices per share in pounds times three possible exchange rates) c) When is the dollar-denominated return equal to the pound denominated return? 6) If each of the nine outcomes in Problem 5 is equally likely, find the standard deviation of both the pound and dollar denominated rates of return. 9) If the current exchange rate is $1.75/GBP, the one year forward exchange rate is $185/GBP and the interest rate on British government bills is 8% per year, what risk free dollar denominated return can be locked in by investing in the British bills? 10) If you were to invest $10,000 in the British bills of Problem 5, how would you lock in the dollar denominated return? 13) Consider the following information: Where the interest rates are annual yields on US or UK bills. Given this information, a) Where would you lend? b) Where would you borrow? c) How could you arbitrage?
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