How is Net Asset Value (NAV) calculated?

Net Asset Value (NAV) is a crucial metric used for assessing the value of a mutual fund or exchange-traded fund (ETF). It represents the per-share value of the fund and is calculated by taking the total assets of the fund, subtracting its total liabilities, and then dividing this figure by the number of outstanding shares.

Choosing the correct answer reflects an understanding of how fund valuations are determined. Specifically, by calculating total assets minus total liabilities, you arrive at the net assets of the fund. This value is then divided by the outstanding shares to ascertain what each share is worth to investors at that given point in time. This methodology ensures that all shareholders have a transparent and equitable measure of what their investments truly represent.

In contrast, averaging total assets or dividing liabilities by the number of shares would not provide any meaningful insight into the value of the shares themselves. Similarly, adding total income and total expenses does not account for liabilities, which are essential to determine the actual net value that shareholders have in the fund. Thus, the chosen answer accurately reflects the comprehensive process involved in NAV calculations, making it the correct choice.