A closed-end fund starts the year with a net asset value of $14. By year-end, NA

Question

A closed-end fund starts the year with a net asset value of $14. By year-end, NAV equals $14.30. At the beginning of the year, the fund is selling at a 4% premium to NAV. By the end of the year, the fund is selling at a 9% discount to NAV. The fund paid year-end distributions of income and capital gains of $1.70. a. What is the rate of return to an investor in the fund during the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Rate of return % b. What would have been the rate of return to an investor who held the same securities as the fund manager during the year? (Round your answer to 2 decimal places.) Rate of return %

Explanation / Answer

Part A has already been answered in the previous question.

Part B: An investor who held the same securities will not have an opportunity to materialize the discount & premium part. So, this will change the return.

=> ($14.30 - $14 + $1.7) / $14 = 14.29%

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