Sept 2010 Q-1(iii)

For Question-1 (iii) of ST-2 exam September 2010

- Can anybody validate my calculations?

Appropriation price

(50000 + 1152 + 750) / 100000 = 5.0192

Expropriation price

(50000 - 1376 + 750 ) / 10000 = 4.9374

- But how can we calculate the Expropriation price on the offer basis? It is given that the fund is valued on offer basis.

- Do the purchasing cost of assets not depend on the number of units created?

- Can anyone show me how the 'Basic equity priciple' is maintained if we are creating 500 new units and putting 500 X 5.0192 in the fund?

- What is the NAV before creating any units?

Many thanks

 

I agree with your calcs, save typo, AP = 5.1902.

It doesn't ask for the EP on the offer basis. Just for the EP. You use the EP in the bid basis.

Costs: yes, I suppose they might. SLighytly simplified example perhaps. But reasonable to assume that costs are proportional to number of units.

If you pay in 500 times 5.1902,
1152/10,000*500 = 57.60 is needed to pay the expenses to buy the assets, leaving you an extra £2,537.50 in the fund for the extra 500 units.

NAV per unit is 5.1902, including buying costs or 5.075 excluding costs.

 

Thanks for your reply.