Expert Answers

Question. An investor is considering purchasing an apartment complex for $240,000. A loan for 20 years at 75 percent of the purchase price is available at 10 percent.
• a. Determine the size of the loan and the amount that will have to be put up in cash. Assume the annual mortgage payment is $21,142.
• b. The investor intends to hold the property for three years and then sell it. He is going to compute net operating income for the first year and then assume that amount will grow by 5 percent over the next two years.

Question. The Twenty-First Century closed-end fund has $350 million in securities, $8 million in liabilities, and 20 million shares outstanding. It trades at a 10 percent discount from net asset value (NAV).
• a. What is the net asset value of the fund?
• b. What is the current price of the fund?
• c. Suggest two reasons why the fund may be trading at a discount from net asset value.

Question. The New Pioneer closed-end fund has $520 million in securities, $5 million in liabilities, and 10 million shares outstanding. It trades at a 5 percent premium above its net asset value (NAV).
• a. What is the net asset value of the fund?
• b. What is the current price of the fund?
• c. Why might a fund trade at a premium above its net asset value?

Question. Assume you invest in the German equity market and have a 20 percent return (quoted in euros).
• a. If during this period the euro appreciated by 10 percent against the dollar, what would be your actual return translated into U.S. dollars?
• b. If the euro declined by 15 percent against the dollar, what would your actual return be translated into U.S. dollars?
• c. Recompute the answer based on a 25 percent decline in the euro against the dollar.

Question. Assume you invest in the Japanese equity market and have a 25 percent return (quoted in yen). However, during the course of your investment, the yen declines versus the dollar. By what percentage could the yen decline relative to the dollar before all your gain is eliminated?