The Mutual Fund, Net Asset Value, Diversification

You have invested in a mutual fund; you are receiving statements summarizing the activity of your account. One critical term in the statement is the Net Asset Value (NAV). The NAV is the total value of mutual fund's stocks, bonds, cash, and other assets minus liabilities divided by the number of shares outstanding. The fund you are analyzing is an open-end mutual fund consisting of several stocks only. You are assigned to calculate NAV and costs of funds the following scenarios. In addition, in this case you will notice that due to capital appreciation and change in investment size, the NAV will be affected.

Suppose the mutual fund contains 390 shares of Stock A, currently trading at $48.39, 1000 shares of Stock B currently trading at $43.70, and 2690 shares of stock C, currently trading at $13.00. The mutual fund has 15,000 shares outstanding held by investors.

1. Calculate the NAV for the fund.

2. If the price of stock A increases to $68 and share price of B decreases to $36.75 and the stock C price increases to $23.91, how will the NAV be affected?

3. Calculate the yield on this investment.

4. Suppose that 1000 additional investors buy one share at the NAV calculated in question 1. Suppose the fund manager decides to use these funds to buy additional shares of Stock C at $23.91. Now, this portfolio will consist of different number of shares that can affect the new NAV. What would be the NAV now?

5. Suppose an individual invests $20,000 in a load mutual fund. The load fund entails an up-front commission charge of 4 percent of the amount invested and is deducted upfront. In addition, annual fund operating expenses are 0.85 percent, which is charged on the average net asset value invested in the fund. The return on this fund is 5 percent each year paid on the last day of the year. What would be the investor's return on this fund after one year?

6. Go to the Investment Company Institute Web site at www.ici.org. Click on "Statistics & Research." Click on "Quarterly Closed-End Assets." How much have closed end funds changed since 2008?

 

 

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