How is NAV calculated for a mutual fund?

• A. NAV equals the fund's assets minus its liabilities.
• B. NAV equals the fund's share price on the open market.
• C. NAV equals the fund's total income divided by outstanding shares.
• D. NAV equals the market value of the fund's portfolio.

Answer: (A)

NAV represents the fund’s net assets. It’s what the fund is worth after all liabilities are subtracted from its assets. In practice, you compute net assets by taking the total assets (market value of the portfolio, plus any cash and receivables) and subtracting total liabilities (accrued expenses, fees, other obligations). The NAV per share, which investors typically see, is that net asset value divided by the number of shares outstanding.

So the statement that NAV equals the fund’s assets minus its liabilities captures the fundamental idea. The other options don’t fit: mutual funds are priced at NAV, not a market share price; NAV isn’t simply total income divided by shares; and NAV per share is derived from net assets, not just the market value of the portfolio alone.