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

Question:

A mutual fund owns 400 shares of General Electric, currently trading at $16, and 400 shares of Microsoft, Inc., currently trading at $28. The fund has 1,000 shares outstanding.

a. What is the net asset value (NAV) of the fund?

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

c. Assume that the expected price of the General Electric shares is realized at $20. What is the maximum price decrease that can occur to the Microsoft shares to realize an end-of-year NAV equal to the NAV estimated in (a)?

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