Question

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

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.