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?
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
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
Get Answers For Free
Most questions answered within 1 hours.