A mutual fund owns 300 shares of General Electric, currently trading at $22, and 400 shares of Microsoft, Inc., currently trading at $28. The fund has 1,000 shares outstanding.
a. What is the net asset value (NAV) of the fund?
b. If investors expect the price of General Electric shares to increase to $26 and the price of Microsoft shares to decrease to $20 by the end of the year, what is the expected NAV at the end of the year?
c. Assume that the expected price of the General Electric shares is realized at $26. What is the maximum price decrease that can occur to the Microsoft shares to realize an end-of-year NAV equal to the NAV estimated in part (a)?