You purchase a closed-end fund at its initial public offering. The initial offering price is $30 per share. The fund promoter receives a 7 percent fee from the offering, and the fund sells at a 9 percent discount to NAV the day after the offering. What is the value of your investment per share?

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Quizplus · Accepted Answer

The initial offering price is $30 per share, and the promoter receives a 7% fee, which means $30 * 0.07 = $2.10 goes to the promoter, leaving $30 - $2.10 = $27.90 as the actual investment in the fund. The next day, the fund sells at a 9% discount to NAV, so the value is $27.90 * (1 - 0.09) = $27.90 * 0.91 = $25.39 per share.

You Purchase a Closed-End Fund at Its Initial Public Offering