The Focus Fund is a mutual fund that holds long-term positions in a small number of nondividend-paying stocks. Its holdings at the end of two recent years are as follows:
YEAR 1 YEAR 2
|
Stock
|
Shares
|
Price
|
Shares
|
Price
|
|
A
|
100,000
|
$45.25
|
100,000
|
$48.75
|
|
B
|
225,000
|
25.38
|
225,000
|
24.75
|
|
C
|
375,000
|
14.50
|
375,000
|
12.38
|
|
D
|
115,000
|
87.13
|
115,000
|
98.50
|
|
E
|
154,000
|
56.50
|
154,000
|
62.50
|
|
F
|
175,000
|
63.00
|
175,000
|
77.00
|
|
G
|
212,000
|
32.00
|
212,000
|
38.63
|
|
H
|
275,000
|
15.25
|
275,000
|
8.75
|
|
I
|
450,000
|
9.63
|
450,000
|
27.45
|
|
J
|
90,000
|
71.25
|
90,000
|
75.38
|
|
K
|
87,000
|
42.13
|
87,000
|
49.63
|
|
L
|
137,000
|
19.88
|
0
|
27.88
|
|
M
|
0
|
17.75
|
150,000
|
19.75
|
|
Cash
|
|
$3,542,000
|
|
$2,873,000
|
|
Expenses
|
|
$ 730,000
|
|
$ 830,000
|
At the end of both years, Focus Fund had 5,430,000 shares outstanding.
a. Calculate the net asset value for a share of the Focus Fund at the end of Year 1, being sure to include the cash position in the net total portfolio value.
b. Immediately after calculating its Year 1 NAV, Focus Fund sold its position in Stock L and purchased its position in Stock M (both transactions were done at Year 1 prices). Calculate the Year 2 NAV for Focus Fund, and compute the growth rate in the fund share value on a percentage basis.
c. At the end of Year 2, how many fund shares of the Focus Fund could the manager re- deem without having to liquidate her stock positions (i.e., using only the cash account)?
d. If immediately after calculating the Year 2 NAV the manager received investor redemp- tion requests for 500,000 shares, how many shares of each stock would she have to sell in order to maintain the same proportional ownership position in each stock? Assume that she liquidates the entire cash position before she sells any stock holdings.