Answer-first summary for fast verification
Answer: $96.21
For a **closed-end fund**, the share price is determined by the present value of the investor's expected future payoff, not necessarily by current NAV. - Current NAV per share = **$100** - Expected asset return = **9.0%** per year - Annual management fee = **0.7%** per year - Net growth rate to the investor after fees = **9.0% - 0.7% = 8.3%** per year - Holding period = **6 years** So the expected value in 6 years is: \[ 100 \times (1.083)^6 \approx 156.19 \] Discount that back at the expected asset return of 9.0%: \[ \frac{156.19}{(1.09)^6} \approx 96.21 \] Therefore, the most likely fund price per share is **$96.21**.
Author: Manit Arora
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Q-21.6.1. The Fast Torpedo fund is a closed-end mutual fund that invests in companies. The fund's average investor has a six-year holding period. The fund pays no dividends. The expected return from the fund's assets (not the fund itself) is 9.0% per annum with annual compound frequency. The management fee is 70 basis points (0.70%) per annum. The net asset value (NAV) of the fund happens to be $100.00 per share. Which of the following is most likely to be the fund's price per share?
A
$96.21
B
$100.00
C
$115.00
D
$231.31
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