What is the impact of the premium on the net asset value of the fund? Why does it add more risk? Does this have an impact on return? i.e if risk increases should we expect higher return?
if the fund premium increases what is the impact on return?
hi any feedback on this one please?
think about it logically. If you pay more for something than it is worth, than you are taking on added risk. If the NAV falls, you are out your premium in addition to the drop on value. As risk increases, you REQUIRE more return.
wonder2008 Wrote: ------------------------------------------------------- > What is the impact of the premium on the net asset > value of the fund? None. > Why does it add more risk? Because not only do you have the risk of the underlying assets, but you have the added variability of the discount/premium. > Does this have an impact on return? Yes. If you buy on a 10% discount and sell on a 10% premium, you’ve just had a 22% uplift. If you do it in reverse, you’ve just had an 18% headwind. > i.e if risk increases should we expect higher > return? If you are going to buy it, you should want higher return.