A mutual fund has 500 shares of General Electric, currently trading at $24, and

Question

A mutual fund has 500 shares of General Electric, currently trading at $24, and 500 shares of Microsoft, Inc., currently trading at $38. The fund has 1,000 shares outstanding.

What is the NAV of the fund? (Round your answer to 2 decimal places. (e.g., 32.16))

If investors expect the price of General Electric to increase to $28 and the price of Microsoft to decline to $22 by the end of the year, what is the expected NAV at the end of the year? (Round your answer to 2 decimal places. (e.g., 32.16))

Assume that the price of General Electric shares is realized at $28. What is the maximum price to which Microsoft can decline and still maintain the NAV as estimated in (a)? (Do not round intermediate calculations.)

A mutual fund has 500 shares of General Electric, currently trading at $24, and 500 shares of Microsoft, Inc., currently trading at $38. The fund has 1,000 shares outstanding.

Explanation / Answer

(a) = Net asset value = Sum of value of assets/Total number of shares
= 500*$24 + 500*$38/1000
= $12000+$19000/1000
= $31000/$1000
= $31

b) Expected NAV at the end of the year = 500*28 + 500*22 /1000
= $14000+$11000/1000
= $25000/1000
= $25

c) NAV as estimated in (a) = $31
Let the price of Microsoft be X
500*28 + 500*X/1000 =$31
$14000 + 500X = $31000
500X = $31000-$14000 = $17000
X= $17000/500 = $34

Maximum price that Microsoft can decline = $34 to maintain the same NAV as in (a)

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