Open-end fund A owns 165 shares of AT&T valued at $35 each and 50 shares of Toro valued at $45 each. Closed-end fund B owns 75 shares of AT&T and 120 shares of Toro. Each fund has 1,000 shares of stock outstanding.
a. What are the NAVs of both funds using these prices?
b. Assume that in one month the price of AT&T stock has increased to $36.25 and the price of Toro stock has decreased to $43.375. How do these changes impact the NAV of both funds? If the funds were purchased at the NAV prices in part (a) and sold at month end, what would be the realized returns on the investments?
c. Assume that another 155 shares of AT&T are added to fund A. The funds needed to buy the new shares are obtained by selling 676 more shares in fund A. What is the effect on fund A’s NAV if the stock prices remain unchanged from the original prices?