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7. A mutual fund has a NAV of $10.70 per share. It is sold with a front-end load of 6%. What’s offering price?8. If the offering price of a mutual fund is $12.30 per share and the fund is sold with a front-end load of 5%, what is its net asset value? 9. The composition of the Fingroup Fund portfolio is as follows: The fund has not borrowed any funds, but its accrued management feewith the portfolio manager currently totals $30,000. There are 4 millionshares outstanding. What is the net asset value of the fund?Answers:9. Stock | Value held by fund
A $ 7,000,000 B 12,000,000 C 8,000,000 D 15,000,000 Total $42,000,000 Net asset value = (42,000,000-30,000)/4,000,000 = 10.49Ch. 3-4 Notes:Limit Order:Ask Price- Lowest Price among unfilled sell orders (lowest you can buy)Bid Price- Highest price among unfilled buy orders (highest price you can sell)Bid ask Spread=ask price-bid price, high=low liquidity, expensive to trade, vice versa Market Order:Buy order-Buy shares at lowest price and walk up the order bookSell order- start with bid price and walk down the order bookLiquidity Provider: Someone who does not want to hold a position in the asset but provides liquidity by selling to buyers at the ask price and buying from sellers at the bidShort sale: sell shares today, buy in future (if company pays dividends you pay that amount to the share lender; a cash outflowMargin Requirements:Maintenance Margin Requirement: sum of maintenance margin for all positions (must be less than portfolio NAV)Excess Margin Capacity: (portfolio NAV- maintenance margin requirement)Initial Margin Requirement: initial margin for new positions< current excess margin capacityChapter 4 Investment CompaniesETF: a shell company whose assets are a portfolio of stocksAt any time you can trade a share of ETF for the underlying assets, vice versaIf demand for ETF is high, price of ETF exceeds NAV (arbitrage opportunity), buy underlying portfolio, trade for ETF shares, sell ETF shareoIncreases shares outstanding, and vice versa Mutual Fund NAV= (market value of assets-market value of liabilities)/shares outstanding Mutual Fund Fees Front End Load: % of initial investment, 1000$ gets you $970 in fundRedemption fees: % of withdrawal Annual Operating Expenses: charged as a % of NAV directly from fund assets not investors, include mgmt. fees and Rule 12b-1 fees for marketing expenses Hedge Fund FeesMgmt fee: percent of assets under mgmt.Performance fee: percent of any investment profits beyond some benchmarkInvestment in practiceHedge Fund Strategies
Directional: Bet on asset class or sector increase or decreaseNon-directional: bet on relative convergence or divergence b/w assets. oFind portfolio with alpha P= a +b(Rm) +e, osell an offsetting amount of the market portfolio B(Rm)o