The market price of closed-end fund shares are historically ________ the NAV.
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A. B. C. D.D
The NAV and the market price of a closed-end fund are almost never the same, because closed-end funds typically have market prices that has historically been a
5 to 20 percent discount to NAV.
The market price of closed-end fund shares can vary in relation to the Net Asset Value (NAV) of the fund. The NAV represents the total value of the fund's assets minus its liabilities, divided by the number of shares outstanding.
In the case of closed-end funds, their shares are traded on an exchange, and the market price is determined by supply and demand dynamics. Unlike open-end mutual funds, closed-end funds have a fixed number of shares that are not redeemed or created on a daily basis. This fixed supply can lead to deviations between the market price and the NAV.
Based on historical trends, closed-end funds tend to trade at a discount to their NAV. This means that the market price of the fund shares is usually lower than the calculated NAV per share. This discount can be attributed to various factors, including market sentiment, investor demand, fund performance, and investor expectations.
Therefore, among the given answer choices, the correct option is B. "5 to 10 percent discount to." This implies that the market price of closed-end fund shares is typically 5 to 10 percent lower than the NAV.
Option A, "about 20 percent premium above," suggests that closed-end funds trade at a premium to the NAV, which is not consistent with historical trends.
Option C, "very close to," implies that the market price is nearly equal to the NAV, which is not typically the case for closed-end funds.
Option D, "none of these answers," would be incorrect since historical data supports the idea of closed-end funds trading at a discount to the NAV.
Remember that this explanation is based on general observations and historical trends, and there can be exceptions or variations in specific instances. It is always important to analyze the specific characteristics and market conditions of individual closed-end funds when assessing the relationship between market price and NAV.