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How does EVP Systems calculate mean prices?

For calculating inversely weighted mean prices, Treasury Regulation § 20.2031-2 (b) 1 states, “The average is to be weighted inversely by the respective numbers of trading days between the selling dates and the valuation.”

The data to be collected and calculation are straightforward but very prone to error. To obtain the weighted mean price of an infrequently traded security, one counts the number of trading days between the valuation date and the nearest prior trade as well as the number of trading days between the valuation date and the next trade after it. The product of the number of prior date trading days times the latter trade mean price is added to the product of the number of the latter date trading days times the prior date mean price. This sum is divided by the sum of the total number of trading days before and after the valuation date. If no trades are found in either direction within a reasonable period of time, bid and ask prices are substituted for actual trades.

For example, if the valuation date is Friday, June 15, and the nearest before and after valuation date trades were on Wednesday, June 13 (two trading days earlier at a mean price of $10 per share) and Wednesday, June 20 (three trading days later at a mean price of $15 per share), the mean price is calculated as:

[ (2 × $15) + (3 × $10) ] ÷ 5 = $12.

EstateVal also provides the option to calculate the mean value of Common Trust Funds using an actual day count. If this option is in effect, a price of $45 on the 15th of the month and $52 on the 31st of the same month would produce a mean calculated price for the 20th as:

[ (5 × $52) + (11 × $45) ] ÷ 16 = $47.1875.

Posted on July 14, 2020 •

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