Question

# An open-ended fund has stocks of three companies: 400 shares of IBM currently valued at \$50.00,...

An open-ended fund has stocks of three companies: 400 shares of IBM currently valued at \$50.00, 200 shares of GE currently values at \$20 and 200 shares of Digital currently valued at \$30. The fund has 500 shares outstanding. What is the net asset value (NAV) of the fund? b) Suppose a company offers two types of funds a) a load fund b) no-load fund. Both funds have same NAV (as of part a) and a life of 1 year. He invests \$500,000 in each fund that has a 5 percent front-end load and 0.75 percent of 12b-1 fee. What is the total dollar amount that an investor has to pay if he wishes to buy; a) A load fund b) No-load fund

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Answer #1

1. net asset value of the fund = value of the fund/no. of shares outstanding

value of the fund = no. of shares fund have of each stock*price per share of each stock

net asset value of the fund = [(400*\$50) + (200*\$20) + (200*\$30)]/500 = (\$20,000 + \$4,000 + \$6,000)/500 = \$30,000/500 = \$60 per share

the net asset value (NAV) of the fund is \$60 per share.

2. a) A load fund - in this fund, investor will have to pay 5% of front-load upfront.

total dollar amount investor has to pay = investment amount + front-load

total dollar amount investor has to pay = \$500,000 + (\$500,000*5%) = \$500,000 + \$25,000 = \$525,000

12b-1 fee is part of expense ratio which is charged at the end of the month. it need not be paid at the time of investment in the fund.

b) No-load fund - it doesn't charge any front-end load.

so, total dollar amount investor has to pay is \$500,000.

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