Part 1: The Closed Fund is a closed-end investment company with a portfolio curr

Question

Part 1:The Closed Fund is a closed-end investment company with a portfolio currently worth $280 million. It has liabilities of $4 million and 5 million shares outstanding.

a. What is the NAV of the fund? (Round your answer to 2 decimal places.)

b. If the fund sells for $52 per share, what is its premium or discount as a percent of NAV? (Input the amount as a positive value. Round your answer to 2 decimal places.)

Part 2:

Loaded-Up Fund charges a 12b-1 fee of 1% and maintains an expense ratio of 0.70%. Economy Fund charges a front-end load of 2%, but has no 12b-1 fee and an expense ratio of 0.30%. Assume the rate of return on both funds’ portfolios (before any fees) is 7% per year.

a. How much will an investment of $100 in each fund grow to after 1 year? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. How much will an investment of $100 in each fund grow to after 4 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

c. How much will an investment of $100 in each fund grow to after 13 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

.

Explanation / Answer

Note: Both parts are separate & independent. So as per rule I am answering first part including both questions of Part-1.

Part – 1;

(a). NAV of the fund = $55.20

Explanation;

NAV = (Current worth of portfolio – Liabilities) / Outstanding shares

Current worth of portfolio = $280000000

Liabilities = $4000000

Outstanding shares = 5000000

Thus NAV will be ($280000000 – $4000000) / 5000000 = $55.20

(b). Discount as a percent of NAV = 5.80% (Approx.)

Explanation;

Current selling price = $52 per share

NAV = $55.20

Discount ($52 - $55.20) = $3.20 per share

Discount as a percent of NAV ($3.20 * 100 / $55.20) = 5.797% or 5.80% (Approx.)

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