Question

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. What is the rate of return to the investor during the year?

2. How much is the year-end balance of the investment, including year-end distributions?

Answer #1

**1) **THE RATE OF RETURN TO THE
INVESTEOR OF A FUND CAN BE CALCULATED USING THE FORMULA

**RATE OF RETURN OF FUND=**

OPENING NAV AFTER DISCOUNT=$10-5%=$9.5

CLOSING NAV INCLUDING PREMIUM=$12+2%=$12.24

DISTRIBUTIONS=$1

**=**

RATE OF RETURN OF FUND **=$39.368**

**2)** TOTAL INVESTMENT=$10,000

NO OF UNITS BOUGHT=10,000/9.5=1052.63

IE,ROUND OF TO **1053** UNITS.

BALANCE OF FUND **=(CLOSING NAV+DISTRIBUTION)*NO OF
UNITS**

=(12+1)*1053=**$13,689**

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