Consider a $100 levered mutual fund that will liquidate in 5 years. The funds capital structure consists of 80% debt and 20% equity. The portoflio is invested in public equities. At the end of the 5th (and final) year, the market value of the public equities is $70. The market value of the funds equity position is most likely:

<$0

$0

>$0

Referring to the prior question, if we were dissatisfied with the funds performance at the end of year 3 and shifted the composition of the public equity portfolio into riskier equities, what would the affect be on funds equity market value:

		No change
		Increases
		Decreases