The net asset value of a closed-end mutual fund is $11.20, and the share price is $10.00. The discount or premium is closest to: The answer is: 10.7% discount. (SP - NAV) / NAV = (10.00 - 11.20) / 11.20 = −0.107 why is this a discount instead of premium? and why can’t I calculate as (NAV-SP)/SP? totally confused…someone help?? thx!
Its all relative to the nav… it costs 10 but the value of the assets is 11.2 so thats why its trading at a discount… You use nav in the denominator because you are trying to figure out what % of the nav the premium or discount is.
got it…thanks for explanation!