Question

You are evaluating a closed-end mutual fund and see that its price is different from its net asset value (NAV). The fund has an expense ratio (ε) of 3.23% and a dividend yield (δ) of 4.00%. The fund has experienced a risk-adjusted abnormal return (α) of 2.81%.

By what amount (premium or discount) is the fund likely to trade
relative to its NAV? **(Round your answer to 2 decimal
places. Use a negative sign to indicate a discount.)**

Answer #1

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**Answer:**

As the expense ratio is greater than the risk-adjusted abnormal return, the bond will sell at a discount. The amount of discount can be determined with the use of following formula:

Amount of Discount = (Risk-Adjusted Abnormal Return - Expense Ratio)/(Dividend Yield + Expense Ratio - Risk-Adjusted Abnormal Return)

Using the values provided in the question in the above formula, we get,

**Amount of Discount** = (2.81% - 3.23%)/(4% +
3.23% - 2.81%) = **-9.50%** (the negative
sign indicates discount)

A closed-end fund has total assets of $375 million and
liabilities of $200,000. Currently, 20 million shares are
outstanding. What is the NAV of the fund? If the shares currently
sell for $17.90, what is the premium or discount on the fund?
(A negative value should be indicated by a minus sign. Do
not round intermediate calculations. Round the NAV answer to 2
decimal places. Enter the premium or discount as a percent rounded
to 2 decimal places.)
Net asset...

A closed-end fund starts the year with a net asset value of $10.
By year-end, its net asset value equals $12. At the start of the
year, the fund sells at a 5% discount to the NAV. At the end of
year, the fund sells at a 2% premium. The fund paid year-end
distributions of income and capital gains of $1 per share. Suppose
an investor invests $10,000 at the start of the year. Please answer
the following questions:
1....

1.You invested in the no-load OhYes Mutual Fund one year ago by
purchasing 800 shares of the fund at the net asset value of $25.75
per share. The fund distributed dividends of $1.81 and capital
gains of $1.64. Today, the NAV is $26.84. If OhYes was a load
fund with a 2% front-end load, what would be the HPR?
2.One year ago, Super Star Closed-End Fund had a NAV of$10.38
and was selling at a(n) 16% discount. Today, its NAV...

1.)
Sam Strother and Shawna Tibbs are vice presidents of
Mutual of Seattle Insurance Company and co-directors of the
company’s pension fund management division. An
important new client, the North-Western Municipal Alliance, has
requested that Mutual of Seattle present an investment seminar to
the mayors of the represented cities, and
Strother and Tibbs, who will make the actual presentation, have
asked you to help them by answering the following
questions.
a. What are the key features of a bond?
b....

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