INVETSMENT AND PORTFOLO

Content type

User Generated

Type

Study Guide

Uploaded By

wbuanyvn

Pages

Rating

https://www.studypool.com/discuss/295607/mod-8-questions-must-show-work

INVETSMENT ANDPORTFOLO MANAGEMENT

MBA 608

BNFN 416 Investment management

Problem set 7

https://www.studypool.com/discuss/295607/mod-8-questions-must-show-work

Mod 9 12/19

Chapter 4 # 15, 17, 21, 24, 25

Chapter 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?

Solution:

(a) What is the NAV of the fund?

NAV = (Assets – Liabilities)/Shares Outstanding = ($200 – $3)/5 = $39.40

(b) If the fund sells for $36 per share, what is its premium or discount as a percent of

net asset value?

Solution:

Premium (or discount) = (Price – NAV)/NAV = ($36 – $39.40)/$39.40 = -0.086 = -8.6%

The fund sells at an 8.6% discount from 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?

(a) What is the rate of return to an investor in the fund during the year?

Solution:

= NAV

× (1 + Premium) = $12.00 × 1.02 = $12.24

= NAV

× (1 – Discount) = $12.10 × 0.93 = $11.25

The NAV increased by $0.10 but the price of the fund decreased by $0.99

Return = (P

+ Distributions)/P

– 1 = ($11.25 + $1.50)/$12.24 – 1 = 4.17%

(b) What would have been the rate of return to an investor who held the same securities

as the fund manager during the year?

Solution:

An investor holding the same securities as the fund manager would have earned a rate of

return of the NAV and not been subject to the change from premium to discount.

Return = (NAV

+ Distributions)/NAV

– 1 = ($12.10 + $1.50)/$12.00 – 1 = 13.33%

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

End of Preview - Want to read all 10 pages?

Access Now

Unformatted Attachment Preview

https://www.studypool.com/discuss/295607/mod-8-questions-must-show-work INVETSMENT ANDPORTFOLO MANAGEMENT MBA 608 BNFN 416 Investment management Problem set 7 https://www.studypool.com/discuss/295607/mod-8-questions-must-show-work Mod 9 12/19 Chapter 4 # 15, 17, 21, 24, 25 Chapter 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? Solution: (a) What is the NAV of the fund? NAV = (Assets - Liabilities)/Shares Outstanding = ($200 - $3)/5 = $39.40 (b) If the fund sells for $36 per share, what is its premium or discount as a percent of net asset value? Solution: Premium (or discount) = (Price - NAV)/NAV = ($36 - $39.40)/$39.40 = -0.086 = -8.6% The fund sells at an 8.6% discount from 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? (a) What is ...
Purchase document to see full attachment