Question: A mutual fund has 400 shares of General Electric, currently trading at $16, and 400 shares of Microsoft, Inc., currently trading at $28. The fund has 1,000 shares outstanding.
a. What is the NAV of the fund?
b. If investors expect the price of General Electric to increase to $20 and the price of Microsoft to decline to $20 by the end of the year, what is the expected NAV at the end of the year?
c. Assume that the price of General Electric shares is realized at $20. What is the maximum price to which Microsoft can decline and still maintain the NAV as estimated in (a)?