Open end mutual fund A has 100 shares of KBL equity value at Rs. 160 each and 50 shares of NMB valued at Rs. 200 each. Closed end fund B has 75…
BBS Management of Financial Institutions · 2080 · Solved Question with Answer
Open end mutual fund A has 100 shares of KBL equity value at Rs. 160 each and 50 shares of NMB valued at Rs. 200 each. Closed end fund B has 75 shares at KBL and 100 shares of NBM. Each fund has 2000 shares of stock outstanding.
a. What are the NAVs of both funds using these prices?
b. Would you buy or sell shares of the fund if they are trading at Rs. 14 per share?
c. Assume that in one month, the price of KBL stock increased to Rs. 165 and price of NMB stock decreased to Rs. 195, how do these changes impact the NAV a both funds? If the funds were purchased at the NAV prices in (a) and sold at month end, what would be the realized returns on the investment?
d. Assume that another 100 shares of KBL are added to fund A, what is the effect on fund A's NAV if the stock prices remain unchanged from the original prices.
e. Explain why the shares of a close end fund usually have a price different from the NAV.