The Well Managed Closed-End Fund turned in the following performance for the yea
ID: 2715664 • Letter: T
Question
The Well Managed Closed-End Fund turned in the following performance for the year 2010.
Item
1. NAV
2. Market price of the fund shares
3. Dividends paid over the year
4. Capital gains distributed over the year
Beginning of the Year
1. $7.50
2. $7.75
3. -----
4. -----
End of the Year
1. $9.25
2. $9.00
3. $1.20
4. $0.90
a. Based on this information, what was the NAV-based HPR for the WMCEF in 2010?
b. Find the percentage (%) premium or discount at which the fund was trading at the beginning of the year and at the end of the year.
c. What was the market-based HPR for the fund in 2010? Did the market premium or discount add to or hurt the holding period return on this CEF? Explain.
Explanation / Answer
A Calculation of NAV based Holding period return for WMCEF in 2010. Holding period return = (Closing NAV - Opening NAV ) + Dividend paid over the year + Capital gains distributed over the year. Holding period return in percentage = (Closing NAV - Opening NAV ) + Dividend paid over the year + Capital gains distributed over the year / Opening NAV * 100 HPR = (9.25 - 7.50) + 1.20 + 0.90 3.85 HPR in percentage = (9.25 - 7.50) + 1.20 + 0.90 / 7.50 * 100 51.33% B Calculation of the premium or discount Opening NAV 7.5 Closing NAV 9.25 Premium 1.75 Premium in percentage = Premium / Opening NAV * 100 23.33% C Calculation of market based Holding period return for WMCEF in 2010. Holding period return = (Closing market price of share - Opening market price of share) + Dividend paid over the year + Capital gains distributed over the year. Holding period return in percentage = (Closing market price of share - Opening Closing market price of share ) + Dividend paid over the year + Capital gains distributed over the year / Opening Closing market price of share * 100 HPR = (9 - 7.75) + 1.20 +0.90 3.35 HPR in percentage = (9 - 7.75) + 1.20 +0.90 / 7.75 43.23% Calculation of the premium or discount Opening market price of share 7.75 Closing market price of share 9 Premium 1.25 Premium in percentage = Premium / Opening NAV * 100 16.13% The market premium will add the holding period return on this CEF, as the amounts of mutual fund has been invested in the shares the increase in the value of the share value will increase the NAV and will increase the holding period return.
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