Net Asset Value (NAV)

### What does NAV represent? - [ ] The total market value of all shares outstanding. - [ ] The difference between total income and total expenses. - [x] The per-share value of a company's or mutual fund's assets minus liabilities. - [ ] The investment performance of a mutual fund over time. > **Explanation:** NAV represents the per-share value of total assets minus total liabilities for a company or mutual fund. ### When is NAV typically calculated for mutual funds? - [x] At the end of each trading day. - [ ] Every morning before the market opens. - [ ] Weekly. - [ ] Quarterly. > **Explanation:** NAV for mutual funds is typically calculated at the end of each trading day to reflect the latest asset and liability valuations. ### What happens to NAV if the total liabilities increase but total assets remain the same? - [ ] NAV rises. - [ ] NAV stays the same. - [x] NAV falls. - [ ] NAV becomes negative. > **Explanation:** An increase in total liabilities while total assets remain the same would reduce NAV, as NAV is calculated by subtracting liabilities from assets. ### If a mutual fund has assets valued at $150 million, liabilities of $30 million, and 10 million shares outstanding, what is its NAV per share? - [ ] $12 - [x] $12 - [ ] $15 - [ ] $18 - [ ] $20 > **Explanation:** NAV per share is calculated as: \\[ \frac{150,000,000 - 30,000,000}{10,000,000} = 12 \text{ USD} \\] ### What main factor affects a mutual fund's NAV on a daily basis? - [ ] The number of shareholders. - [x] The market value of assets held by the fund. - [ ] The management fee charged. - [ ] The fund's marketing expenses. > **Explanation:** The market value of the assets held by the fund primarily affects its NAV on a daily basis. ### How is NAV different from market price in relation to mutual funds? - [x] NAV is the intrinsic value of assets minus liabilities, while market price is the trading price of mutual funds on the exchange. - [ ] NAV and market price are always the same. - [ ] Market price includes additional management fees not reflected in NAV. - [ ] NAV only applies to ETFs, not mutual funds. > **Explanation:** NAV is the intrinsic value of the fund's assets minus its liabilities, whereas market price can reflect various market factors including sentiments and demand. ### Which of the following best describes NAV's importance to investors? - [ ] NAV indicates the annual return of the investment. - [ ] NAV predicts future performance. - [x] NAV helps determine the value of a single share of the mutual fund or company. - [ ] NAV shows the total profit generated by the investment. > **Explanation:** NAV helps investors determine the current per-share value of the mutual fund or company, thus gauging its relative value. ### Why might a high NAV not necessarily indicate a better investment? - [ ] Higher NAV means lower risk. - [x] NAV should be evaluated in conjunction with other metrics like performance, management, and fees. - [ ] Higher NAV always means better returns. - [ ] NAV does not take into account the company’s liabilities. > **Explanation:** While NAV is important, it should be evaluated alongside other factors such as historical performance, fund management quality, and associated fees. ### What aspect of a fund mostly reflects changes in its NAV? - [ ] The age of the fund. - [ ] The number of new investors. - [x] The market performance of the fund's underlying assets. - [ ] The longevity of the fund's managers. > **Explanation:** NAV reflects the market performance and valuation changes of the underlying assets held by the fund. ### A mutual fund's NAV is most closely related to which financial report? - [ ] Cash flow statement. - [ ] Income statement. - [x] Balance sheet. - [ ] Statement of changes in equity. > **Explanation:** NAV is primarily derived from the balance sheet, which provides detailed information on a fund's assets and liabilities.