FRM Part I · FRM Exam Part I · Fund Management
A closed-end fund holds assets worth $240 million with liabilities of $20 million. It has 10 million shares outstanding, which trade on an exchange at $20.90. What is the premium or discount to NAV?
The fund trades at a 5.0% discount. NAV per share is ($240 million minus $20 million) divided by 10 million shares, or $22.00. The market price of $20.90 is $1.10 below NAV, which is 5.0% of NAV.
- A5.0% discountCorrect
- B5.0% premium
- C4.5% discount
- D9.5% premium
Explanation
NAV = (240 − 20)/10 = $22.00. Discount = (20.90 − 22.00)/22.00 = −5.0%. Using the market price as the base gives 5.26% in magnitude, and ignoring liabilities gives NAV $24, a 12.9% discount; neither matches.
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