Question

Seved Help Save & Exit City Street Fund has a portfolio of $440 million and liabilities of $20 million a. If there are 60 million shares outstanding, what is the net asset value? Net asset value $ 7 b-1. If a large investor redeems 1 million shares, what happens to the portfolio value? (Enter your answer in millions.) Portfolio value decreases to $ 433 million

Answer 1

a. The net asset value is computed as shown below:

= ( Market value of Assets - Market value of liabilities ) / Number of shares outstanding

= ( $ 440 million - $ 20 million ) / 60 million

= $ 7

b-1. The value of the portfolio is computed as follows:

= Old Market value of Assets - Number of shares redeemed x NAV per share

= $ 440 million - 1 million x $ 7

= $ 433 million

Portfolio value decreases to $ 433 million

b-2. The number of shares outstanding is computed as follows:

= Old number of shares outstanding - number of shares redeemed

= 60 million - 1 million

= 59 million shares

b-3. The net asset value is computed as follows:

= ( Market value of Assets - Market value of liabilities ) / Number of shares outstanding

= ( $ 433 million - $ 20 million ) / 59 million

= $ 7

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