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.Required: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?

Answer 1

Answer and Explanation:

The computation is shown below:

a. NAV of the fund is

= (Portfolio amount - liabilities) ÷ (outstanding shares)

= ($200 - $3) ÷ ($5)

= $39.40

b. The premium or discount as a percent of NAV is

= (Price - net asset value) ÷ (net asset value)

= ($36 - $39.40) ÷ ($39.40)

= -0.086

This represents the discount of 8.6%

We applied the above formulas