CA Final · Advanced Financial Management · Portfolio Management
Kavita invests Rs 12,000 at the start of each of three consecutive months in a mutual fund scheme, as a rupee cost averaging strategy. The NAVs on the three investment dates are Rs 20, Rs 15 and Rs 24. What is her average cost per unit, to two decimal places?
Her average cost is about Rs 18.95 per unit. She buys 600, 800 and 500 units, which is 1,900 units for Rs 36,000. Because a fixed rupee amount buys more units at low NAVs, the cost is below the simple average NAV of Rs 19.67.
- ARs 18.95Correct
- BRs 19.67
- CRs 20.00
- DRs 18.00
Explanation
Units bought are 600 + 800 + 500 = 1,900 for a total outlay of Rs 36,000. The average cost is 36,000 / 1,900 = Rs 18.95. Rs 19.67 is the simple average of the NAVs (59/3), which wrongly ignores that more units are bought when the NAV is low. Rs 20 is only the first NAV.
Did you get it right without looking?
One question tells you little. A timed set on Portfolio Management shows your real accuracy, how long you take and where you lose marks.
More Portfolio Management questions
- An investor follows a constant-mix strategy for a ₹10 crore portfolio, with a target of 60% equity and 40% debt. After a market fall, equity…
- Rohan holds Rs 10,00,000 in security A with an expected return of 11% p.a. He considers switching to security B with an expected return of 1…
- Rohan Securities starts a CPPI strategy with ₹1,00,00,000, a floor of ₹70,00,000 and a multiplier of 3. Leverage is not permitted, so equity…
- Mehta Family Office invests 40% of a portfolio in Equity Fund A with an expected return of 12% and 60% in Equity Fund B with an expected ret…
- In a Fama-French style three-factor model, which set of factors is used to explain portfolio returns?
- Sundaram Asset Managers reports that its Balanced Fund earned an average return of 14% with a standard deviation of 16%. The risk-free rate …