Question

The Closed Fund is a closed-end investment company with a portfolio currently worth \(200 million. It has liabilities of \)3 million and 5 million shares outstanding.

a. What is the NAV of the fund?

b. If the fund sells for $36 per share, what is its premium or discount as a percent of NAV?

Short answer

a. $39.40

b. - 8.6 %

Step-by-step solution

Definition

Closed-end funds are those funds where shares are traded (and not redeemed) at a price that can differ from net asset value.

Calculation of NAV of the fund

a. NAV = Current value– liability /Outstanding

= $200 million - $3 million / $5 million

= $39.40

Calculation of premium or discount

b. Premium = Price – NAV / NAV

= $36 - $39.40 / $ 39.40

= - 0.086 or - 8.6 %

Therefore the fund sells at an 8.6% discount from NAV