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Tutorial 2

The document contains a tutorial on investment and portfolio management, focusing on various types of funds, their operating expenses, net asset values, turnover rates, and rates of return. It includes practical exercises and questions related to mutual funds, closed-end funds, and individual investments. The tutorial aims to enhance understanding of fund performance metrics and comparative advantages of different investment vehicles.

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Ngoc Linh Cao
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7 views2 pages

Tutorial 2

The document contains a tutorial on investment and portfolio management, focusing on various types of funds, their operating expenses, net asset values, turnover rates, and rates of return. It includes practical exercises and questions related to mutual funds, closed-end funds, and individual investments. The tutorial aims to enhance understanding of fund performance metrics and comparative advantages of different investment vehicles.

Uploaded by

Ngoc Linh Cao
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Investment and Portfolio Management

TOPIC 2 – TUTORIAL 2

1. Would you expect a typical open-end fixed-income mutual fund to have higher or lower
operating expenses than a fixed-income unit investment trust? Why?

2. Why can closed-end funds sell at prices that differ from net asset value while open-end funds
do not?

3. The composition of the Fingroup Fund portfolio is as follows:

a. The fund has not borrowed any funds, but its accrued management fee with the portfolio
manager currently totals $30,000. There are 4 million shares outstanding. What is the net
asset value of the fund?
b. If during the year the portfolio manager sells all of the holdings of stock D and replaces it
with 200,000 shares of stock E at $50 per share and 200,000 shares of stock F at $25 per
share, what is the portfolio turnover rate?

4. The Closed Fund is a closed-end investment company with a portfolio currently worth $200
million. It has liabilities of $3 million and 5 million shares outstanding.
a. What is the NAV of the fund?
b. If the fund sells for $36 per share, what is its premium or discount as a percent of net asset
value?

5. City Street Fund has a portfolio of $450 million and liabilities of $10 million. If 44 million
shares are outstanding, what is net asset value?

6. Corporate Fund started the year with a net asset value of $12.50. By year-end, its NAV equaled
$12.10. The fund paid year-end distributions of income and capital gains of $1.50. What was
the (pretax) rate of return to an investor in the fund?

7. The New Fund had average daily assets of $2.2 billion last year. The fund sold $400 million
worth of stock and purchased $500 million during the year. What was its turnover ratio?

8. You purchased 1,000 shares of the New Fund at a price of $20 per share at the beginning of
the year. You paid a front-end load of 4%. The securities in which the fund invests increase in
value by 12% during the year. The fund’s expense ratio is 1.2%. What is your rate of return on
the fund if you sell your shares at the end of the year?
Investment and Portfolio Management

9. Loaded-Up Fund charges a 12b-1 fee of 1.0% and maintains an expense ratio of .75%.
Economy Fund charges a front-end load of 2% but has no 12b-1 fee and an expense ratio of
.25%. Assume the rate of return on both funds’ portfolios (before any fees) is 6% per year.
How much will an investment in each fund grow to after:
a. 1 year?
b. 3 years?
c. 10 years?

Extra exercises:

1. What are some comparative advantages of investing in the following?


a. Unit investment trusts.
b. Open-end mutual funds.
c. Individual stocks and bonds that you choose for yourself.

2. A closed-end fund starts the year with a net asset value of $12.00. By year-end, NAV equals
$12.10. At the beginning of the year, the fund was selling at a 2% premium to NAV. By the
end of the year, the fund is selling at a 7% discount to NAV. The fund paid year-end
distributions of income and capital gains of $1.50.
a. What is the rate of return to an investor in the fund during the year?
b. What would have been the rate of return to an investor who held the same securities as the fund
manager during the year?

3. Consider a mutual fund with $200 million in assets at the start of the year and 10 million shares
outstanding. The fund invests in a portfolio of stocks that provides dividend income at the end
of the year of $2 million. The stocks included in the fund’s portfolio increase in price by 8%,
but no securities are sold and there are no capital gains distributions. The fund charges 12b-1
fees of 1%, which are deducted from portfolio assets at year-end. What is the fund’s net asset
value at the start and end of the year? What is the rate of return for an investor in the fund?

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