2. Open-end Fund A has 165 shares of ATT valued at $25 each and 50 shares of Toro valued at $45 each. Close-end Fund B as 75 shares at ATT and 100 shares of Toro. Both funds have 1,000 shares outstanding. (G 17-4)

a. What is the NAV of each fund using these prices?
b. Assume that another 165 shares of ATT valued at $25 are added to Fund A. The funds needed to buy the new shares are obtained by selling 647 more shares in Fund A. What is the effect on Fund A’s NAV if the prices remain unchanged?
c. If the price of ATT stock increases to $26.25 and the price of ATT stock declines to $43,375, how does that impact the NAV of both funds? Assume that Fund A has only 100 shares of ATT.

a. To calculate the Net Asset Value (NAV) of each fund using the given prices, we need to first calculate the total value of the stocks held by each fund, and then divide it by the total number of shares outstanding.

For Fund A:
Total value of ATT stock = 165 shares x $25/share = $4,125
Total value of Toro stock = 50 shares x $45/share = $2,250
Total value of both stocks = $4,125 + $2,250 = $6,375
NAV of Fund A = $6,375 / 1,000 shares = $6.375 per share

For Fund B:
Total value of ATT stock = 75 shares x $25/share = $1,875
Total value of Toro stock = 100 shares x $45/share = $4,500
Total value of both stocks = $1,875 + $4,500 = $6,375
NAV of Fund B = $6,375 / 1,000 shares = $6.375 per share

b. When 165 shares of ATT valued at $25 are added to Fund A and 647 shares are sold, we need to calculate the change in the total value of the fund.

Additional value added to Fund A = 165 shares x $25/share = $4,125
Value of shares sold in Fund A = 647 shares x $25/share = $16,175
Change in total value of Fund A = $4,125 - $16,175 = -$12,050

Since the prices remain unchanged, the number of shares remains the same, and only the total value changes. Therefore, the effect on Fund A's NAV would be the change in total value divided by the total number of shares.

Effect on Fund A's NAV = -$12,050 / 1,000 shares = -$12.05 per share

c. If the price of ATT stock increases to $26.25 and the price of Toro stock declines to $43.375, we need to calculate the new total value of each fund using the updated prices.

For Fund A:
Total value of ATT stock (after increase) = 100 shares x $26.25/share = $2,625
Total value of Toro stock (after decline) = 50 shares x $43.375/share = $2,168.75
Total value of both stocks = $2,625 + $2,168.75 = $4,793.75
NAV of Fund A (after change) = $4,793.75 / 1,000 shares = $4.79375 per share

For Fund B:
Total value of ATT stock (after increase) = 75 shares x $26.25/share = $1,968.75
Total value of Toro stock (after decline) = 100 shares x $43.375/share = $4,337.50
Total value of both stocks = $1,968.75 + $4,337.50 = $6,306.25
NAV of Fund B (after change) = $6,306.25 / 1,000 shares = $6.30625 per share