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How Do Closed-End Funds Work? CEFs, like mutual funds and ETFs, invest in a portfolio of securities. The issuer uses the total value of the portfolio to calculate the fund’s net asset value, or NAV.
A closed-end fund usually trades at a premium or discount to the market value of its assets (known as net asset value, or NAV). [ 5 ] : 340–341 In contrast, the price of an open-end fund cannot fall below net asset value, because the funds are required to transact with investors only at net asset value.
If the NAV in the above example had, with the same assets, been calculated as $160 million (and the NAV per share as $160), the investor would have been given 250,000 shares and would become entitled to 1/5 of the fund's value. In contrast, closed-end funds are traded in the open market between investors, bought and sold at market prices and ...
If you’re a mutual fund or ETF investor, then you need to know about net asset value. Here’s the basics.
Closed-end fund discount (the case when net asset value of a mutual fund does not equal to its market price) reported to be possible measure of investor attention (Zweig (1973) [16] and Lee et al. (1991) [17]). The studies suggest that changes in discounts of closed-end funds are highly correlated with fluctuations in investor sentiment.
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