FRM Part I · FRM Exam Part I · Fund Management
An open-end mutual fund has total assets of $540 million, liabilities of $15 million, and 21 million shares outstanding at the close of trading. At what price will an investor who submits a redemption order that day sell shares back to the fund?
The investor receives $25.00 per share. Open-end funds redeem at end-of-day net asset value, which equals total assets less liabilities divided by shares outstanding: (540 - 15) / 21 = 25. Ignoring liabilities would overstate NAV at $25.71.
- A$25.71
- B$25.00Correct
- C$25.00 less any premium to NAV
- D$24.29
Explanation
NAV = (540 - 15) / 21 = $25.00. Open-end funds redeem at the end-of-day NAV. Using total assets without subtracting liabilities gives 540/21 = $25.71, which is wrong because liabilities are owed to creditors. $24.29 is an unsupported figure. Redemption is not at a market premium.
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