FRM Part I · FRM Exam Part I · Fund Management
A closed-end fund has net assets of $180 million and 6 million shares. It trades at a 10% discount to NAV. An activist buys shares at market price and the fund then converts to open-end status, with shares redeemable at NAV. Ignoring costs, what is the gain per share to a holder who bought before conversion at the discounted price?
The gain is $3.00 per share. NAV is $30.00 from $180 million over 6 million shares, the discounted price is $27.00, and conversion to open-end lets holders redeem at NAV, eliminating the $3.00 discount.
- A$3.00Correct
- B$30.00
- C$2.70
- D$3.33
Explanation
NAV = 180/6 = $30.00. Price at 10% discount = $27.00. After conversion the discount vanishes, so gain = 30 - 27 = $3.00. $3.33 wrongly treats 10% as the discount from price rather than NAV.
Did you get it right without looking?
One question tells you little. A timed set on Fund Management shows your real accuracy, how long you take and where you lose marks.
More Fund Management questions
- An open-end fund holds illiquid bonds and faces heavy redemptions during a market stress. Which statement best explains why open-end structu…
- An open-end mutual fund has total assets of $540 million, liabilities of $15 million, and 21 million shares outstanding at the close of trad…
- Which feature distinguishes an open-end mutual fund from a closed-end fund?
- A researcher builds a hedge fund performance database from a commercial vendor in which funds report voluntarily. Funds that liquidate after…
- Which of the following best describes a merger arbitrage strategy in which the acquirer offers its own shares to the target's shareholders?
- A closed-end fund holds assets worth $240 million with liabilities of $20 million. It has 10 million shares outstanding, which trade on an e…