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A closed-end fund starts the year with a net asset value of $12.00. By year-end, NAV equals $12.10. At the beginning of the year, the fund was selling at a 2% premium to NAV. By the end of the year, the fund is selling at a 7% discount to NAV. The fund paid year-end distributions of income and capital gains of $1.50. a. What is the rate of return to an investor in the fund during the year?

Answer :

TomShelby

Answer:

One-year return on the fund (including capital gain/loss) 4.19%

Explanation:

An investor could purchase the fund at

12 x (1 + 2%) = 12.24

During the year, received 1.50 in distributions of income

At year-end it could sale it at:

12.10 x (1 - 7%) = 11.253

Capital return: 11.253 - 12.24= -0.987

Total return 1.50 - 0.987 = 0.513

Investment cost: 12.24

Return of return:  return / investment

0.513 / 12.24 =  0,0419117 = 4.19%

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