A closed-end fund starts the year with a net asset value of $22.00. By year-end,

Question

A closed-end fund starts the year with a net asset value of $22.00. By year-end, NAV equals $22.20. At the beginning of the year, the fund was selling at a 1.5% premium to NAV. By the end of the year, the fund is selling at a 3.5% discount from NAV. The fund paid year-end distributions of income and capital gains of $3.00.

a. What is the rate of return to an investor in the fund during the year? (Do not round intermediate calculations. Round your answer to 1 decimal place. Omit the "%" sign in your response.)

b. What would have been the rate of return to an investor who held the same securities as the fund manager during the year?

Explanation / Answer

Year Begning Trading Price = $22+($22*1.50%) = $22.33

Year ending trading price= $22.20-(22.20*3.50%) =$21.42

Dividend and Capital gain =$3.00 per unit

Return during the year = {($21.42 - $22.33)+ $3 }/$22.33 = 0.0939 = 9.36%

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