# How many new units?

Discussion in 'Managed Funds & Index Funds' started by Mark Laszczuk, 18th Oct, 2005.

1. ### Mark LaszczukWell-Known Member

Joined:
16th Aug, 2005
Posts:
793
Location:
Brisbane
Have a situation for those in the know:

Let's say an investor puts \$136,000 into Navra with a margin of 50%, meaning they got a \$136,000 margin loan. So the total amount invested is \$272,000. They receive a distribution from Navra of approx. \$13,000 which is re-distributed back into the fund.

For ease of the example, let’s say the unit price on the day they buy back in is \$1.09 and that they bought the original units at \$1.18 (just as an example). What I would like to know is:

- how many new units would they get at \$1.09 if they margined the entire amount to 60%? That is, the original amount of \$136,000 plus the \$13,000. How is this calculated?

Mark

2. ### Simon HampelCo-founderStaff Member

Joined:
9th Jun, 2005
Posts:
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Location:
Sydney, Australia
Here's how it works:

\$136,000 capital + \$136,000 margin = \$272,000 @ \$1.18 = 230,508.4746 units

\$13,000 distribution @ \$1.09 = 11,926.6055 units

Total units = 242,435.0801

Current value @ \$1.09 = \$264,254.24

LVR = 136000 / 264,254.24 = 51.47%

Now if you are actually wanting to increase this LVR to 60%, you could purchase an additional \$22,552.54 worth of units using the margin loan to take the total loan to \$158,552.54 with a fund value of \$264,254.24

\$22,552.54 @ \$1.09 = 20,690.4059 units extra

3. ### Mark LaszczukWell-Known Member

Joined:
16th Aug, 2005
Posts:
793
Location:
Brisbane
Sim,

You're a champion! Thanks for that.

Mark

4. ### talbashanWell-Known Member

Joined:
21st Sep, 2005
Posts:
58
Sim,
I can follow most of what you wrote but you lose me at the end...
as i understand it.. if mark buys an extra \$22,552.54 worth of units, the loan indeed goes up to \$158,552.54 (\$136,000 + 22,552.54) but the total fund value will now go up as well from \$264,254.24 to \$286,806.78 (\$264,254.24 + \$22,552.54) and the LVR will be 55.28% not 60%.
this is how i calculate it (let me know if i'm wrong and where):
\$264,254.24 (current value of fund)
-\$136,000.00 (what you owe the margin lender)
=\$128,254.24 (this is YOUR share of the total value at the current unit price)

if you now want to margin this at 60% then:

\$128,254.24 / 0.4 = \$320,635.60 (this is the new total value of money invested)
so,
\$320,635.60 (new total value of fund)
-\$128,254.24 (YOUR share of this new total value)
=\$192,381.36 (margin lender's share of new total value)

ie you will borrow an extra \$56,381.36 (on top of the original \$136,000.00) to bring the LVR (at current unit price) to 60%.

here it is:
\$192,381.36 (margin lender's share of new total value)
/\$320,635.60 (new total value of fund)
= 60%

5. ### Simon HampelCo-founderStaff Member

Joined:
9th Jun, 2005
Posts:
4,773
Location:
Sydney, Australia
Doh ... you are absolutely right talbashan ... I was working on a spreadsheet, got distracted, when I got back to it I realised I had made a mistake, and then I made another mistake thinking I was fixing the first mistake!! That's what you get for rushing.

Sorry Mark ... you could indeed purchase approximately a further 51,725 units @ 1.09 = \$56,381 extra.