 |
 |
Articles / TULARC / Investing / A Guide to CEFs / |  |
|
|
||||
|
|
|||
|
|
|||
|
||||
|
|
||||
|
   |
|
||
|
Net Asset Value of Closed-End Funds |
|
||
|
||||
|
|
|
||
|
||||
|
|
Articles / TULARC / Investing / A Guide to CEFs / | |
|
|
||||
|
|
|||
|
|
|||
|
||||
|
|
||||
|
|
|
||
|
Net Asset Value of Closed-End Funds |
|
||
|
||||
|
|
|
||
|
||||
|
|
|
|
||
|
||
|
|
|
|
||
|
|
||
|
||
|
|
|
|
||
|
||
This article is from the A Guide to Closed-End Funds (CEFs).
Simply put, the net asset value (NAV) is the current worth of a share of the CEF. It is computed by deducting the total assets of the CEF (the current market value of the securities held by the CEF plus cash) from the total liabilities, and dividing the result by the total number of outstanding shares.
NAV = (Total Assets - Total Liabilities) / Shares Outstanding
The NAV of a CEF will fluctuate with the changes to the market price of the securities in which the CEF has invested.
As mentioned before, CEFs are publicly traded, that is, the shares of the CEF change hands in a stock exchange market like the New York Stock Exchange or the American Stock Exchange. The price at which the shares trade is called the market price. The market price of a CEF will fluctuate with the demand and supply principles of the market.
Sometimes, when demand exceeds supply, the market price at which the shares of a CEF trade may be at a premium to the NAV, that is, the shares of the CEF cost more than its NAV. Likewise, when supply exceeds demand, the shares of the CEF may trade at a discount to its NAV, that is, the shares of the CEF cost less than its NAV. For example, if the NAV of a CEF is $10 and its market price is $12, the CEF is trading at a premium of 20%. If the NAV is $10 and its market price is $8, the CEF is trading at a discount of 20%. The premium/discount may be computed using the following formula:
Premium/Discount = (Market Price - NAV) / NAV
Though some funds trade at a premium, the majority of CEFs trade at a discount, often as much as 15%-20%. The premium or discount is not constant, but usually fluctuates with market conditions. Often a fund that is trading at a discount may shoot upto a steep premium or vice versa, as investors' perceptions of the market changes.
Continue to:
CEFs, closed-end fund, premium, discount, volatility, trading, investing, leverage, yields, buying, selling, shares, money, funds, mutual funds, adventages, disadvantages, liquidity, commissions, brokers, source, information, reference
|
|
|
|
 |
|