At the beginning of the year, you buy shares of a closed-end fund which has a NA

Question

At the beginning of the year, you buy shares of a closed-end fund which has a NAV of $80 and trades at a 5% discount. At the end of the year the fund distributes $0.5 in taxable dividends and closes the year with a NAV of $82, trading a 3% premium. Assuming that the tax rate on the dividends and capital gains is 30%.

a. Find the prices of the fund at the begging and end of the year.
b. Calculate the after-tax return from buying one share of the fund on Jan.1 and holding it until Dec.31
c. If the fund charges a front-end load of 5% and a back-end load of 5%, what would one-year holding period return?
d. If you were able to replicate the asset holdings of the closed-end fund, what would after-tax return be? (ignore transaction costs in the replication).

Explanation / Answer

a) 80*.95= 76 82*1.03= 84.46 b) [(84.46-76) + 0.50]*.70/76= 8.3% c) [(80.24-79.8) +.50] *.70/79.8= 0.1% d) [(82-80) +.50]*.70/80= 2.2%

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