Eveningstar open-end fund has 1,000 shares outstanding and has the following assets in its portfolio: 100 shares of Procter & Gamble (P&G) priced at $30.00, 300 shares of Intel priced at $50.00 and 200 shares of Microsoft priced at $60.00. The Morningstar closed-end fund has the following stocks in its portfolio: 300 shares of P&G and 300 shares of Microsoft. It has a total of 500 shares outstanding. To what level should the price of Microsoft shares decline in order for the NAV of Morningstar fund to remain constant if the price of P&G rises to $40?

Question

Quizplus · Accepted Answer

The NAV of the Morningstar fund is currently:(300 shares of P&G x $30) + (300 shares of Microsoft x $60) = $27,000If the price of P&G rises to $40, the NAV of the Morningstar fund will be:(300 shares of P&G x $40) + (300 shares of Microsoft x $60) = $33,000In order for the NAV of the Morningstar fund to remain constant, the price of Microsoft shares must decline to:$33,000 / 300 shares = $55

Eveningstar Open-End Fund Has 1,000 Shares Outstanding and Has the Following