An investment fund has $1 million in cash and $9 million invested in securities. It currently has 1 million shares outstanding. (LG 21-7)

a. What is the NAV of this fund?

b. Assume that some of the shareholders decide to cash in their shares of the fund. How many shares, at its current NAV, can the fund take back without resorting to a sale of assets?

c. As a result of anticipated heavy withdrawals, it sells 10,000 shares of IBM stock currently valued at $40. Unfortunately, it receives only $35 per share. What is the net asset value after the sale? What are the fund’s cash assets after the sale?

d. Assume after the sale of IBM shares, 100,000 shares are sold back to the fund. What is the current NAV? Is there a need to sell more stocks to meet this redemption?

The following problems are related to the Appendix material.

 LO.1