An investment fund has the following assets in its portfolio: $ 40 million in fixed- income securities

Question:

An investment fund has the following assets in its portfolio: $ 40 million in fixed- income securities and $ 40 million in stocks at current market values. In the event of a liquidity crisis, it can sell its assets at a 96 percent discount if they are disposed of in two days. It will receive 98 percent if disposed of in four days. Two shareholders, A and B, own 5 percent and 7 percent of equity (shares), respectively.

a. Market uncertainty has caused shareholders to sell their shares back to the investment fund. What will the two shareholders receive if the investment fund must sell all its assets in two days? In four days?

b. How does this differ from a bank run? How have bank regulators mitigated the problem of bank runs?

Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing...