Question

An investment fund has the following assets in its portfolio: $40 million in fixed-income securities and $40 million in stocks at current market values. In the event of a liquidity crisis, it can sell its assets at a 96 percent discount if they are disposed of in two days. It will receive 98 percent if disposed of in four days. Two shareholders, A and B, own 6 percent and 8 percent of equity (shares), respectively. Market uncertainty has caused shareholders to sell their shares back to the investment fund. What will the two shareholders receive if the investment fund must sell all its assets in two days, in four days?1A. Two Days $_______millions.B. Two Days $_______millions.2A. Four Days $________millions.B. Four Days $________million.

Answer 1

Answer:

Sells with 2 days:

$ 4,608,000

$6,144,000

Sells within 4 days

$4,704,000

$6,272,000

Explanation:

The computation sell of two days and four days is shown below:-

Sells with 2 days:

Value of fixed-income securities = $40,000,000 ×  0.96

= $38,400,000

Value of stock =$40,000,000 × 0.96

= $38,400,000

Total value = $76,800,000

Shareholder A gets from 6% of equity = $76,800,000 × 6%

= $ 4,608,000

Shareholder B gets from 8% of equity = $76,800,000 × 8%

= $6,144,000

Sells within 4 days

Value of fixed-income securities = $40,000,000 × 0.98

= $39,200,000

Value of stock =$40,000,000 × 0.98

= $39,200,000

Total value =$78,400,000

Shareholder A gets from 6% of equity = $78,400,000 × 6%

= $4,704,000

Shareholder B gets from 8% of equity = $78,400,000 × 8%

= $6,272,000