Course 404: Closed-end Funds
Premiums and Discounts
In this course
1 Introduction
2 Why are they called "Closed-End" funds?
3 Capital Inflows and Outflows
4 Premiums and Discounts

The "closed-end" structure gives rise to discounts and premiums. After the IPO, a CEF's shares trade on the open market, typically on an exchange, and the market itself determines the share price. The result is that the share price typically does not match the net asset value of the fund's underlying holdings. (Net asset value = (Fund Assets-Fund Liabilities)/Shares Outstanding)

If the share price is higher than the net asset value, shares are said to be trading at a "premium." This is typically portrayed as a "positive discount," although mathematically that is counterintuitive. For instance, a fund trading at a two percent premium would be shown as "+2%." If the share price is less than the net asset value, the shares are said to be trading at a "discount." This is typically portrayed with a minus sign, "-2%."

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