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3) A mutual fund has 250 shares of 3M, currently trading at $160 and 500 shares of Aflac. currently trading at $60. The fund has2,500

3) A mutual fund has 250 shares of 3M, currently
trading at $160 and 500 shares of Aflac. currently
trading at $60. The fund has2,500 shares outstanding. (LG 17-5)
a. What is the NAV of the fund?
b. If investors expect the price of 3M to increas to $180 and
the price of Aflac to decline to $40 by the end of the
year, what is the expected NAV at the end of the year?
c. Assume that the price of 3M shares is realized at $170.
What is the maximum price to which Aflac can decline
and still maintain the NAV as estimated in (a)?
estimated in (a)?
NAV = Total market value of assets under management
Number of mutual fund shares outstanding
a. NAV = ((250 x $160) + (500 x $60))/2,500 =
b. Expected NAV = ((250 x $180) + (500 x $40))/2,500 =
an increase of 7.69 percent (28.00 - 26.00)/26.00 =
c. (250 x $170)/2,500 + (500 x PM)/2,500 = $28.00
($42,500/2,500) + (500PM/2,500) = $28.00
$17.00 + (500PM/2,500) = $28.00
500PM/2,500 = $11
500PM = $27,500
PM = $55.00

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