Question

A closed-end fund starts the year with a net asset value of $18.00. By year-end, NAV equals $18.40. At the beginning of the year, the fund was selling at a 2.5% premium to NAV. By the end of the year, the fund is selling at a 5% discount from NAV. The fund paid year-end distributions of income and capital gains of $1.60. a. What is the rate of return to an investor in the fund during the year

Answer 1

Answer: 3.41%

Explanation:

Rate of return = (Change in price + Income and Gains) / Beginning price

Beginning Price = NAV * Premium

= 18 * ( 1 + 2.5%)

= $18.45

Ending Price

= NAV * Discount

= 18.40 * ( 1 - 5%)

= $17.48

Rate of Return = (( 17.48 - 18.45) + 1.60) / 18.45

= 3.41%