Closed-End Mutual Fund Discount or Premium

C

To determine the discount or premium of a closed-end mutual fund, you need to compare the share price to the net asset value (NAV) of the fund.

The net asset value (NAV) represents the total value of the fund's assets minus its liabilities, divided by the total number of outstanding shares. It is the per-share value of the fund's assets.

In this case, you are given that the net asset value (NAV) of the fund is $20.40 and the share price is $18.20.

To calculate the discount or premium, you can use the following formula:

Discount/Premium = (Share Price - NAV) / NAV

Substituting the given values:

Discount/Premium = ($18.20 - $20.40) / $20.40

Discount/Premium = (-$2.20) / $20.40

Discount/Premium = -0.1078

The result is a negative value, indicating a discount.

To determine the magnitude of the discount or premium, you can consider the absolute value of the result:

|Discount/Premium| = |-0.1078| = 0.1078

Therefore, the discount you would receive or the premium that you would pay is 0.1078.

However, the answer choices provided are given as decimals, not percentages. To convert the result to a decimal, you would need to multiply it by 100.

0.1078 * 100 = 10.78

Therefore, the correct answer is option D: 0.1078.