Question 25

The net asset value (NAV) of the mutual fund is $7.

To calculate the net asset value (NAV), subtract the total liabilities from the total assets and then divide by the number of shares. In this case, the NAV is calculated as ($10 million - $3 million) / 1 million shares, which equals $7.

A) $6

Option A is incorrect because it suggests a NAV that is lower than the calculated value. The formula used to find the NAV clearly indicates that the result should be $7, not $6.

B) $7

Option B is correct as it accurately reflects the calculated NAV. By taking the total assets of $10 million, subtracting the liabilities of $3 million, and then dividing the result by the 1 million shares, we arrive at a NAV of $7.

C) $10

Option C is incorrect because it misrepresents the NAV calculation. It does not account for the liabilities which must be subtracted from the total assets, leading to an inflated NAV figure of $10, rather than the correct value of $7.

D) $14

Option D is also incorrect as it suggests a NAV that is significantly higher than what the calculation provides. The calculation requires liabilities to be deducted from assets before dividing by the number of shares, thus making a NAV of $14 impossible in this context.

Conclusion

The correct answer is $7, as it is the result of the proper calculation of the mutual fund's NAV. All other options fail to reflect the necessary subtraction of liabilities from assets, leading to erroneous values that do not represent the mutual fund's true net asset value.