NAV Calculation for Closed-End Investment Companies

A

The NAV of a closed-end investment company is computed twice every day of trading when there are prevailing market prices for the portfolio securities.

The correct answer is B. once every day of trading.

Closed-end investment companies issue a fixed number of shares through an initial public offering (IPO) and then trade on stock exchanges, just like common stocks. These companies raise capital by selling shares to investors and use the proceeds to invest in a diversified portfolio of securities.

The Net Asset Value (NAV) of a closed-end investment company represents the per-share value of the company's assets after deducting its liabilities. It is essentially the value of each share of the company. The NAV is calculated by dividing the total value of the company's assets minus liabilities by the total number of shares outstanding.

The NAV is determined once every day of trading, typically at the close of the trading day. At that time, the company's portfolio is valued, taking into account the market prices of the securities held by the company. The NAV calculation considers the market value of the securities, cash, and any other assets held by the company, as well as any liabilities it may have.

By calculating the NAV daily, investors can have an up-to-date valuation of their investment in the closed-end fund. This allows them to assess the performance of their investment and make informed decisions. Additionally, the daily NAV helps investors determine the premium or discount at which the shares are trading compared to the NAV. If the share price is higher than the NAV, it is trading at a premium, while if it is lower, it is trading at a discount.

It's worth noting that closed-end investment companies differ from open-end investment companies, such as mutual funds. Open-end funds continuously issue and redeem shares based on the NAV, which is calculated at the end of each trading day. In contrast, closed-end funds have a fixed number of shares and trade on exchanges like stocks, so their share price may differ from the NAV due to market demand and supply dynamics.

To summarize, the NAV of a closed-end investment company is computed once every day of trading to provide investors with an up-to-date valuation of their investment and help them assess the performance and trading dynamics of the fund.