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14 October, 23:17

The Closed Fund is a closed-end investment company with a portfolio currently worth $260 million. It has liabilities of $2 million and 6 million shares outstanding.

a. What is the NAV of the fund?

b. If the fund sells for $40 per share, what is its premium or discount as a percent of NAV?

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  1. 15 October, 00:49
    0
    a. NAV = $43

    b. Premium = - 7.5% discount

    Explanation:

    a.

    Given

    Market Value of Assets = $260 million

    Market Value of Liabilities = $2 million

    Outstanding Shares = $6 million

    NAV is calculated by:

    NAV = (Market value of assets - market value of liabilities) / shares outstanding - ->

    (260,000,000 - 2,000,000) / 6,000,000 =

    = $258,000,000 / $6,000,000

    $43

    b.

    Given

    Price = $40 per share

    NAV = $43 - - - calculated

    Premium is calculated as:

    Premium = (Price - NAV) / NAV

    (40 - 43) / 43

    = - 3/40

    = - 0.075

    = - 7.5% discount
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