Question

One year ago, Super Star Closed-End Fund had a NAV of $10.23 and was selling at a(n) 15% discount. Today, its NAV is $11.72 and it is priced at a(n) 6% premium. During the year, Super Star paid dividends of $0.4 and had a capital gains distribution of $0.93. On the basis of the above information, calculate each of the following

a. Super Star's NAV-based holding period return for the year.

b. Super Star's market-based holding period return for the year. Did the market premium/discount hurt or add vlaue to the investor's return? Explain.

c. Repeat the market-basede holding period return calculation, except this time assume the fund started the year at a(n) 14% premium and ended it at a(n) 6% discount. (Assume the beginning and ending NAVs remain at $10.23 and $11.72, respectively.) Is there any changes in this measure of return? Why?

a. Super Star's NAV-based holding period return for the year____%

Answer 1

	Detail provided
	Particulars	Reference	Other information	Amount
	Year ago NAV	A	$	10.23
	Disount	B	15%	1.53
	After discount value	C=A-B		8.70
	Today's NAV	D	$	11.72
	Premium	E	6%	0.70
	After Premium Value	F=D+E		12.42
	Dividend Paid	G		0.40
	Capital Gain Distributed	H		0.93
	Total Income distributed	I		1.33
Answers
a	Super Star's NAV Based holding period return for the year
	Today's NAV	D	$	11.72
	Year ago NAV	A	$	10.23
	Return	J=D-A		1.49
	Return with income Distributed	K=J+I		2.82
	% Of Return
	Return without income Distributed	L=J/A*100		15%
	Return with income Distributed	M=K/A*100		28%
b	Super Star's market Based holding period return for the year
	Today's Market Value	F		12.42
	Year ago Market Value	C		8.70
	Return	N=F-C		3.73
	Return with income Distributed	O=N+I		5.06
	% Of Return
	Return without income Distributed	P=N/C*100		43%
	Return with income Distributed	Q=O/C*100		58%
	Conclusion:- Premium/ Discount Added value to the investor return.
c	Repeat Market Based Return
	Year ago NAV	I	$	10.23
	Premium	II	14%	1.43
	After Premium value	III=I+II		11.66
	Today's NAV	IV	$	11.72
	Discount	V	6%	0.70
	After Discount Value	VI=IV-V		11.02
	Dividend Paid	VII		0.40
	Capital Gain Distributed	VIII		0.93
	Total Income distributed	IX=VII+VIII		1.33
	Today's Market Value	IX		11.02
	Year ago Market Value	III		11.66
	Return	X=VI-III		-0.65
	Return with income Distributed	XI=X+ (dividend +CG)		0.68
	% Of Return
	Return without income Distributed	XII=X/I *100		-6%
	Return with income Distributed	XIII=XI/I*100		7%
	Conclusion:- Return has been reduced as earlier super star was at premium and now it is at discount.
	Buyer has paid more at the time of purchase and he is reciving less at current time on sale.
d	Super Star Nav Based return %
	Today's NAV	I		11.72
	Year ago NAV	IV		10.23
	Return	O=I-IV		1.49
	Return with income Distributed	P=O+ (dividend +CG)		2.82
	% Of Return
	Return without income Distributed	Q=O/I		13%
	Return with income Distributed	R=P/I		24%