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?

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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