ARE143_CHAP_4 - 1 Managerial Economics (ARE) 143 University...

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1 Managerial Economics (ARE) 143 University of California, Davis Instructor: John H. Constantine Chapter 4—Mutual Funds Problem 1: Given that no-load funds are widely available, why would a rational investor pay a front-end load? More generally, why don’t fund investors always seek out funds with the lowest loads, management fees, and other fees? Problem 2: Is it true that the NAV of a money market mutual fund never changes? How is this possible. Problem 3: (a) The WIA Fund has current assets with a market value of $4.5 billion and has 130 million shares outstanding. What is the net asset value (NAV) for this fund? (b) Suppose the mutual fund in part (a) has a current market price quotation of $36.10 . Is this a load fund, and if so, calculate the front-end load. Problem 4: The Tike Growth and Equity Fund is a “low-load” fund. The current offer price quotation for this mutual fund is $48.65, and the front-end load is 1.5 percent. What is the NAV? If there are 13.4 million shares outstanding, what is the current market value of assets owned by the Tiki Fund? Problem 5: The HLA Money Market Mutual Fund has a NAV of $1 per share. During the year, the assets held by this fund appreciated by 4.6 percent. If you had invested $15,000 in this fund at the start of the year, how many shares would you own at the end of year? What will the NAV of this fund be at the end of the year? Explain. Problem 6: An open-end mutual fund has the following stocks: Shares Stock price Stock A 4,000 $68.00 Stock B 9,000 $32.00 Stock C 6,500 $44.00 Stock D 8,400 $56.00 Mutual fund 50,000 (a) If there are 50,000 shares of the mutual fund, what is its NAV? (b) Suppose the fund has liabilities of $75,000. What is the NAV of the fund now? (c) Assume the fund is sold with a 5 percent front-end load. What is the offering price of the fund? Problem 7: A mutual fund sold $75 million of assets during the year and purchased $68 million in assets. If the average daily assets of the fund was $120 million, what was the fund turnover?
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2 Problem 8: What are the comparative advantages of investing your assets in the following: (a) Unit investment trusts. (b)
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ARE143_CHAP_4 - 1 Managerial Economics (ARE) 143 University...

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