Question Set #7 on Mutual Funds
If an investor buys shares in a no-load mutual fund for $31.40 and the shares appreciate to $44.60 in a year, what would be the percentage return on the investment?
(Final NAV - Initial NAV)/Initial Nav x 100 = 42.04%
If an investor buys shares in a no-load mutual fund for $31.40 and the shares appreciate to $44.60 in a year, what would be the percentage return on the investment? ...If the fund charges an exit fee of 1 percent, what would be the return (in percent)?
44.60(1%) = 0.446 44.60 - 0.446 = $44.154 (Final Adj NAV - Initial Nav)/Initial NAV x 100 = % return on Investment (44.154 - 31.40)/ 31.40 = 40.62%
What is the net asset value (NAV) of an investment company with $10,000,000 in assets, $790,000 in current liabilities, and 1,200,000 shares outstanding?
Assets - Liabilities/ Outstanding shares = NAV ($10,000,000 - $790,000)/ 1,200,000 shares = 7.6 as NAV
You know the following information with regard to a convertible bond: Coupon 6%, exercise price $25, Maturity of 20 years, call price of $1,040, and the price of the common stock is $30. 3. What is the value of the bond in terms of stock?
Conversion Ratio x Price of the Stock = Value of the Bond $40 x $30 = $1200
You know the following information with regard to a convertible bond: Coupon 6%, exercise price $25, Maturity of 20 years, call price of $1,040, and the price of the common stock is $30. If this bond were not convertible, what would it be worth if comparable rates were 12%?
FV = $1000 n = 20 x 2 = 40 PMT = 30 I = 12%/2 = 6% We solve for PV PV = $548.61
You know the following information with regard to a convertible bond: Coupon 6%, exercise price $25, Maturity of 20 years, call price of $1,040, and the price of the common stock is $30. 2. Into how many shares can the bond be converted?
Face Value/ Conversion Price $1000/$25 = $40
Your client is considering two different investment opportunities. They can purchase a Corporate Bond that yields 12% or they could purchase a municipal bond yielding 8%. If they are in the 28% marginal income tax bracket, which bond would you recommend (and think about why)?
Municipal Bond: 8%/(1-28%) = 0.111 x 100 = 11.11% --11.11% of Municipal Bond < 12% of Corporate Bond Corporate Bond: 12% x (1-28%) = 8.64% --8.64% of Corporate Bond > 8% Municipal Bond yield We would choose corporate Debt
Consider the following investment options: 1)Invest $3,000 annually in a mutual fund that earns 10 percent annually (all distributions are reinvested). How much will you have after 20 years?
PMT = $3000 N = 20 I = 10% PV = 0 We solve for FV FV = $171,825
Consider the following investment options: 3. Invest $3,000 annually in a no-load mutual fund that charges 12b-1 fees of 1 percent that earns 10 percent annually (all distributions are reinvested). How much will you have after 20 years?
PMT = $3000 N = 20 I = 10% - 1% = 9% PV = 0 We solve for FV FV = $153,480.36
Consider the following investment options: 2) Invest $3,000 annually in a mutual fund with a 5 percent load fee that earns 10 percent annually (all distributions are reinvested). How much will you have after 20 years?
PMT = $3000 - $3000(5%) = $2850 N = 20 I = 10% PV = 0 We solve for FV FV = $163,233.75
Consider the following investment options: 4. Invest $3,000 annually in a no-load mutual fund that has a 5 percent exit fee. The fund earns 10% annually before fees, and you reinvest all distributions. How much will you have in the account at the end of 20 years?
PMT = $3000-$3000(5%) = $2850 N = 20 I = 10% PV = 0 We solve for FV FV = $163,233.75
You purchase a bond for $1,280 with a coupon rate of 8% that matures in 10 years. After 3 years the bond is callable with a call penalty of one year's interest. If the issuer exercises their right to call after 5 years, what is the YTC (in percent) for this bond?
PV = $1,280 FV = $1000 + $1000(8%) = $1080 N = 5 x 2 = 10 PMT = 1000(8%)/2 = $40 We solve for I as YTC I = 1.68 x 2 = 3.35 as YTC
You know the following information with regard to a convertible bond: Coupon 6%, exercise price $25, Maturity of 20 years, call price of $1,040, and the price of the common stock is $30. 5. If the current market price of the bond is $976, what should you do?
Purchase the bond; this would be an opportunity for arbitrage since you could immediately convert the security into $1,200 worth of stock. $1200 > $976
An investor buys shares in a mutual fund for $20 per share. At the end of the year the fund distributes a dividend of $0.58, and after the distribution the net asset value of a share is $23.41. What would be the investor's percentage return on the investment?
Realized capital gains are equal to; 23.41 - 20 = $3.41 Capital Gains + Dividend Payment = Total return on investment. $3.41 + 0.58 = $3.99 Total Return on investment/ Initial Price x 100 = % return on investment $3.99/$20 x 100 = 19.95%
If a mutual fund's NAV is $23.40 and the fund sells its shares for $25, what is the load fee as a percentage of the NAV?
Selling Price - NAV = Load Fee $25- $23.40 = 1.6 Load Fee/NAV = % of the NAV (1.6/23.40) x 100 = 6.84%
You know the following information with regard to a convertible bond: Coupon 6%, exercise price $25, Maturity of 20 years, call price of $1,040, and the price of the common stock is $30. 4. What is the current minimum price that the bond will command?
The Minimum Price will be $1200
