Question

you are a financial advisor with a client who purchased 100 shares of stock in a fund with a net asset value of $21.30 and an offer price of $21.45. your client wants to make $20 per share on the stock when it is sold. the client calls you to find out why you have not sold the shares today, because they saw the stock listed with a net asset value of $41.30 and an offer price of $41.45. explain to your client why you have not sold the shares.

Explanation:

1. Calculate the client's total cost per share: The client bought at the offer price of $\$21.45$.
2. Calculate the required selling price to hit the $\$20$ per-share profit target: $\$21.45 + \$20 = \$41.45$.
3. Compare to the current offer price: The current offer price is $\$41.45$, which only meets the exact target (not exceeding it). If the client sells at this price, they will only break even on their required profit (before any potential fees). Waiting may allow for a price that exceeds the target, or the current price only matches the threshold without room for transaction costs. Additionally, when selling fund shares, investors receive the net asset value (NAV), not the offer price. The current NAV is $\$41.30$, which would give a per-share profit of $\$41.30 - \$21.45 = \$19.85$, which is less than the client's $\$20$ per-share goal.

Answer:

The shares should not be sold yet because the client's required per-share profit goal has not been met when accounting for the offer price (the price the client would pay to sell the fund shares).