A mutual fund has 400 shares of General Electric, currently trading at $16, and 400 shares of

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A mutual fund has 400 shares of General Electric, currently trading at $16, and 400 shares of Microsoft, Inc., currently trad- ing at $28. The fund has 1,000 shares outstanding. (LG 17-4)

a. What is the NAV of the fund?

b. If investors expect the price of General Electric to increase to $20 and the price of Microsoft to decline to $20 by the end of the year, what is the expected NAV at the end of the year?

c. Assume that the price of General Electric shares is realized at $20. What is the maximum price to which Microsoft can decline and still maintain the NAV as esti- mated in (a)?

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Financial Markets And Institutions

ISBN: 9780078034664

5th Edition

Authors: Anthony Saunders, Marcia Cornett

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