A closed-end fund starts the year with a net asset value of $22. By year-end, NAV equals $23.10. At the beginning of the year, the fund is selling at a 3% premium to NAV. By the end of the year, the fund is selling at a 8% discount to NAV. The fund paid year-end distributions of income and capital gains of $2.50. a. What is the rate of return to an investor in the fund during the year?

b. What would have been the rate of return to an investor who held the same securities as the fund manager during the year?

Question

King Sellers

Business

11 August, 14:46

A closed-end fund starts the year with a net asset value of $22. By year-end, NAV equals $23.10. At the beginning of the year, the fund is selling at a 3% premium to NAV. By the end of the year, the fund is selling at a 8% discount to NAV. The fund paid year-end distributions of income and capital gains of $2.50. a. What is the rate of return to an investor in the fund during the year?

b. What would have been the rate of return to an investor who held the same securities as the fund manager during the year?

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Answers (1)

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Fisher Blake · Answer 1

a. Rate of return is 4.81%

b. He will receive the same return of 4.81% percent as the fund manger have.

Explanation:

a.

Start of the year NAV = $22 x 103% = $22.66

End of the year NAV = $23.10 x 0.92 = $21.25

Change in Price = 21.25 - 22.66 = - $1.41

Rate of Return = ((Change in NAV + Distribution received) / start of the year NAV) x 100

Rate of Return = ((-$1.41 + $2.5) / 22.66) x 100

Rate of Return = 4.81%

b.

He will receive the same return of 4.81% percent as the fund manger have.