Ch16: Unit pricing

Question 1

Basic equity principle of unit pricing

Answer 1

The interests of unit holders not involved in a unit transaction should be unaffected by that transaction e.g. net asset value per unit should be the same as before the appropriation.

Question 2

Appropriation price

Answer 2

The amount of money put into the fund for each new unit appropriated is such that the net asset value per unit is the same as before the appropriation

Question 3

Calculation process: appropriation price

Answer 3

1. the market “offer price” value of the assets held by the fund plus the expenses that would be incurred in the purchase and any stamp or other duty payable in respect of such a purchase
2. plus the value of any current assets, such as cash on deposit or investments sold but not yet settled
3. less the value of any current liabilities, such as investments purchased but not yet settled
4. plus any accrued income net of outgo such as fund charges
5. less any allowance for accrued tax, if applicable

Gives net asset value of the fund on an “offer basis”.

Question 4

Calculation process: expropriation price

Answer 4

same as above, but starting point would be proceeds that would be received from selling assets in the fund. This requires that investments of the fund are valued on a market bid basis and the expenses that would be incurred in the sale would be deducted.

Gives the net value of the fund on a “bid basis”