Total Net Assets Research Articles

Valuing a Forest as a Call Option: The Sale of Forestry Corporation of New Zealand

Abstract In September 1996, the New Zealand (NZ) Government sold its 100% shareholding in the Forestry Corporation of NZ (FC) to a consortium led by Fletcher Challenge Forests (FF), a publicly listed company, for NZ $2.06 billion. Option pricing methodology is used to value the forest assets that were listed in FC's 1996 Annual Report at $1.853 billion. Total net assets had a book value of $2.03 billion, about $30 million less than the selling price. Assuming a 7.5% real cost of capital and a maximum tax rate of 33%, the actual value of the forest assets realized in the sale (taken to be $1.853 billion) are at a 12.9% discount to the "fair" value of $2.128 billion derived by the option pricing approach. The advantage of this approach to forest valuation over the traditional approach (based on discounted cash flow using projected future prices over long horizons) is that only the volatility of future log prices need be estimated. The relative insensitivity of forest value to this parameter suggests less spread between bid and ask prices by forest buyers and sellers with similar costs of capital, tax rates, and so on. For. Sci. 46(1):32-39.

Stable Lévy motion approximation in collective risk theory

Collective risk theory is concerned with random fluctuations of the total net assets, the risk reserve, of an insurance company. In this paper we consider weak approximations in risk theory which are especially relevant whenever the claim experience allows for heavy-tailed claims. We approximate the risk process by an α-stable Lévy motion (1 < α < 2) with drift. The ruin probability within a finite time horizon is estimated. Finally, a numerical example is presented.

Portfolio Selection and the Investment Performance of the UK Pension Funds*

Pension funds are the main institutional investors, accounting for 38 per cent of personal sector net financial wealth. As a result of their growing importance in mobilizing personal sector saving, they have emerged as the principal institutional investor, controlling over £200bn of funds at the end of 1987, their total net assets equalling 38 per cent of personal sector net financial wealth. Pension funds also dominate domestic asset markets, owning 27per cent of the stock of outstanding UK equity, 23 per cent of UK government securities and 17 per cent of total UK holdings of overseas equity. In this paper we present the conclusions from recent research, undertaken as part of an updating of the LBS Financial Model. Our results suggest that UK pension fund investment since 1980 is better than previous studies have suggested and, in particular, that funds outperformed the equity market in the 1980s, offering a higher return for any given level of risk. In addition fund behaviour is slow to change, with past behaviour exerting the strongest influence on current investment patterns. Fund managers also appear guilty of “short termism” in that they place little weight on events beyond the next three months. However, this has not made them inefficient. Finally, we find that actions to restrict the funds' surpluses should not affect their investment behaviour. Our results also suggest that the costs from exchange controls in the 1970s were substantial, amounting to some £4bn per year.

Hours of Labor Supplied by Black and White Married Women: Determinants of Variation

Factors that were most important in determining hours of labor supplied by black wives were different from those affecting white wives. Contrary to findings of previous research, the presence of preschool children had a much weaker effect on hours of labor supplied by white wives than of black wives. The results also indicated that when black wives were given white characteristics, the net change in hours of labor supplied to the market was 5.39. This increase arises from the higher education, higher assessment of health, and larger total net assets which the exchange provided to black wives.

No-Load Mutual Funds: An Analysis of Their Performance and Expense Ratios

DURING THE PAST DECADE, the total net assets of the mutual fund members of the Investment Company Institute rose from $4 billion to nearly $24 billion. In this same period, the number of shareholders accounts increased by over 300% (1.4 million to 5.9 million), and the number of shareholders advanced to over three million individuals and institutions. This growth has occurred despite, or possibly because of, the fact that most funds levy a 7 to 9% sales or load charge on share purchases-a charge which the critics of mutual funds' find particularly annoying. Participating in this growth, along with the funds which levy a sales charge, were a number of investment companies-most of them formed since 1950-which have endeavored to operate while selling shares at net asset value or at approximately net asset value. Employing no salesmen and keeping advertising expenses to a minimum, these no-load or low-load funds2 (hereafter termed simply no-load funds) have evolved primarily as a sideline of investment counsel firms and brokerage houses, which may earn handsome management fees and/or commissions if their funds are successful. After studying about 250 funds, we found that at the end of June, 1963 there were thirty-eight investment companies in operation with net assets of $900 million, which we felt should be classified as no-load funds. (See Table I.) Twenty of these funds were in existence a decade earlier, and their total net assets at that time amounted to approximately $110 million. Thus, the net assets of no-load funds increased 700% in ten years, as contrasted with a 500% increase by the mutual fund members of the Investment Company Institute, most of which impose the customary sales charge. But, despite this relatively rapid growth, since the no-load funds started from a much smaller base, they still hold only about 4 % of the net assets of all mutual funds. The recent Wharton School study of the mutual fund industry (hereafter termed Wharton Report) made the following comment about no-load funds: I