Week5_FIN4025_Feb6_MutualFunds_PracticeQs1

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George Brown College Canada *

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Finance

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Feb 20, 2024

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REVIEW - MUTUAL FUNDS What is NAVPS?: Net asset value per share (NAVPS) is an expression for net asset value that represents the value per share of a mutual fund, an exchange-traded fund (ETF), or a closed-end fund. Sample Question: ABC Fund currently has $13,000,000 in assets, $1,000,000 in liabilities, and 1,000,000 units outstanding. What is the offering price (the price paid by an investor for 1 unit)? NAVPS Calculation = Total Assets – Total Liabilities Total # Shares or Units Outstanding = $13,000,000 - $1,000,000 1,000,000 = $12,000,000 = $12 / unit 1,000,000 Practice Question: GBC Fund currently has $25,000,000 worth of securities. It has $2,000,000 in cash and liabilities of $1,500,000. If there are 10,000,000 shares outstanding, the fund NAVPS is … NAVPS Calculation = Total Assets – Total Liabilities Total # Shares or Units Outstanding = $25,000,000 - $1,500,000 10,000,000 = $23,500,000 = $2.35 / unit 10,000,000 What is an MER?: Is the combined costs of managing a fund including operating expenses and taxes. Sample Question: At the end of 2016, ABC Fund had $11,800,000 worth of securities. The total expenses incurred in managing ABC Fund were roughly $150,000. What was the fund’s MER for 2016? MER = Total Fees & Expenses Paid During the Year x 100 Average NAV of the Fund for the Year = $150,000 = 0.012 x 100 = 1.2% $11,800,000 Practice Question: At the end of 2016, GBC Fund had $24,100,000 worth of securities. The total expenses incurred in managing GBC

Fund for the year were roughly $426,000. What was the fund’s MER for 2016? MER = $426,000 = 0.0176 x 100 = 1.76% $24,100,000 What is a Front-End Load?: Is a sales charge or commission that an investor pays "upfront"—that is, upon purchase of the asset. Sample Question: What is the current offering (purchase) price for the GBC mutual fund if it has a “front-end load” of 4.5%? Offering Price = NAVPS 100% - Front-End Load = $2.35 = $2.46 / unit 95.5% (or 0.955) Practice Question: What would be the offering (purchase) price for the GBC Fund in 2018 if, its NAVPS doubles to $3.10, but the Board of Directors has reduced the “front-end load” to 3.75%? Offering Price = NAVPS 100% - Front-End Load = $3.10 = $3.22 / unit 96.25% (or .9625)

What is a (DSC) Back-End Load?: Some mutual funds charge you when you buy your units or shares (called front-end load or initial sales charge) and others charge you when you sell (called back-end load or DSC). Charges paid at the time of redemption vary depending on how long you have held the fund. Sample Question: What would be the current redemption (selling) price for the GBC Fund if, rather than a “front-end load” it had a back-end load schedule as follows, was bought in 2015 and sold in 2017? Year 1: 6% Year 2: 5% Year 3: 4% Year 4: 2% Year 5: 0% Selling Price = NAVPS – Sales Commission = NAVPS – (NAVPS x Sales %) = $2.35 – ($2.35 x 5%) = $2.35 - $0.12 = $2.23 / unit Practice Question: What would be the redemption (selling) price for the GBC Fund if it was sold in 2018 as a back-end load fund? Selling Price = NAVPS – Sales Commission = NAVPS – (NAVPS x Sales %) = $3.10 – ($3.10 x 4%) = $3.10 - $0.124 = $2.98 / unit What is a Distribution?: Distributions are a payout of your business's equity to you and other owners. That means they can come from the accumulated profits or from money that was previously invested in the business and are not factored into how much a business owner is taxed. Sample Question: An investor has a personal MTR of 40% and purchases one mutual fund share with a NAVPS of $30. The fund then distributes $6 / share as a capital gains dividend or distribution. What is the value of the portfolio after the distribution and what are the tax consequences to Robert? Portfolio Value (Pre-Distribution) = $30 Portfolio Value (Post-Distribution): NAVPS = $24 Cash or Re-invested Dividend = $6

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