Problem Set 7
1.
Calculating Net Asset Value. Given the information below, calculate the net
asset value for the Boston Equity mutual fund.
Total assets
$225,000,000
Total liabilities
5,000,000
Total number of shares 4,400,000
Ans.
NVA = Value of portfolio – Liabilities / No. shares outstanding
Thus, 225,000,000 – 5,000,000 = 220,000,000
220,000,000 / 4,400,000 =
$50.00
2.
Calculating the Rate of Return of Investment Using Financial Leverage. Suppose
Shaan invested just $10,000 of his own money and had a $90,000 mortgage with
an interest rate of 8.5 percent. If after three years he sold the property for
$120,000.
Ans.
a.
What is his gross profit?
Selling Price – Purchase Price
= $120,000 – $100,000 =
$20,000
b. What is his net profit/loss?
Gross Profit – Interest Paid for 3 years
= $20,000 – ($90,000 x .085 = $7,650 x 3)
= $20,000 - $22,950`=
- $2,950.
c.
What is the rate of return on investment?
-$2,950 / $20,000 =