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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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