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How many new units?

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

  1. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    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 Hampel

    Simon Hampel Co-founder Staff Member

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    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 Laszczuk

    Mark Laszczuk Well-Known Member

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    Sim,

    You're a champion! Thanks for that.

    Mark
     
  4. talbashan

    talbashan Well-Known Member

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    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 Hampel

    Simon Hampel Co-founder Staff Member

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    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.