chap004

chap004 - Chapter 04 - Mutual Funds and Other Investment...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 04 - Mutual Funds and Other Investment Companies Chapter 4 Mutual Funds and Other Investment Companies 1. The unit investment trust should have lower operating expenses. Because the investment trust portfolio is fixed once the trust is established, it does not have to pay portfolio managers to constantly monitor and rebalance the portfolio as perceived needs or opportunities change. 2. The offering price includes a 6% front-end load, or sales commission, meaning that every dollar paid results in only $0.94 going toward purchase of shares. Therefore: Offering price = 06 . 0 1 70 . 10 $ load 1 NAV - = - = = $11.38 3. NAV = offering price × (1 – load) = $12.30 × 0 .95 = $11.69 4. Stock Value held by fund A $ 7,000,000 B 12,000,000 C 8,000,000 D 15,000,000 Total $42,000,000 Net asset value = 000 , 000 , 4 000 , 30 $ 000 , 000 , 42 $ - = $10.49 5. Value of stocks sold and replaced = $15,000,000 Turnover rate = 000 , 000 , 42 $ 000 , 000 , 15 $ = 0.357 = 35.7% 6. a. NAV = million 5 million 3 $ million 200 $ - = $39.40 4-1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Chapter 04 - Mutual Funds and Other Investment Companies b. Premium (or discount) = NAV NAV ice Pr - = 40 . 39 $ 40 . 39 $ 36 $ - = –0.086 = -8.6% The fund sells at an 8.6% discount from NAV 7. Rate of return = NAV year of Start ons Distributi ) NAV ( + = 50 . 12 $ 50 . 1 $ 40 . 0 $ + - = 0.0880 = 8.80% 8. a. Start of year price = $12.00 × 1.02 = $12.24 End of year price = $12.10 × 0.93 = $11.25 Although NAV increased, the price of the fund fell by $0.99. Rate of return = price year of Start ons Distributi ) ice (Pr + = 24 . 12 $ 50 . 1 $ 99 . 0 $ + - = 0.0417 = 4.17% b. An investor holding the same portfolio as the fund manager would have earned a rate of return based on the increase in the NAV of the portfolio: Rate of return = NAV year of Start ons Distributi ) NAV ( + = 00 . 12 $ 50 . 1 $ 10 . 0 $ + = 0.1333 = 13.33% 9. a. Unit investment trusts : diversification from large-scale investing, lower transaction costs associated with large-scale trading, low management fees, predictable portfolio composition, guaranteed low portfolio turnover rate. b.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 6

chap004 - Chapter 04 - Mutual Funds and Other Investment...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online