Question

Question 10 1 pts One year ago, Vanguard Mutual Closed-End Fund had a NAV of $12.25 and was selling at an 6% discount. Today, its NAV is $22.3 and it is priced at a 12% premium. During the year, Vanguard paid dividends of $0.17 and had a capital gains distribution of $1.95. On the basis of this information, calculate Vanguard's market-based percent holding period return for the year. [Enter the answer in as a percentage - not a decimal)

Answer 1

Answer 1 -

1. Calculation of holding period return

(Note- As it is mentioned in the question that shares are sold at discount and premium but it not specified that whether NAV is after discount or premium of before discount or premium, hence we will calculate holding period return based on following assumption)

Assumption 1- NAV is after discount or premium

Return = [(NAV₁-NAV₀) + (Dividend + Capital Gain)] / NAV₀

= [($22.30-$12.25)+(0.17+1.95)] / $12.25

= ($10.05+2.12) / $12.25

=$12.17/$12.25*100

Return= 99.35%

Assumption 1- NAV is before discount or premium

NAV₀= $12.25 - 6% = $11.515

NAV₁ = $22.30 + 12%= $ 24.976

Return = [(NAV₁-NAV₀) + (Dividend + Capital Gain)] / NAV₀

= [($24.976-$11.515)+(0.17+1.95)] / $11.515

= ($13.461+2.12) / $11.515

=$15.581 / $11.515 * 100

Return = 135.30%  

Answer 2

Calculation of holding period return

Sr. No.	Particulars	Amount
a	Number of units purchased	404
b	NAV at the time of purchase	$10.34
c	Value of investment (a*b)	$4177.36
d	Dividend & Capital gain received per share ($0.32+$1.77)	$2.09
e	Total dividend and capital gain (a*d)	$844.36
f	NAV at which Capital gain & Dividend are reinvested	$12.99
g	Total units reinvested	65
h	Total no. of units at end of year (a+g)	469
i	Closing NAV	$12.23
j	Closing value of investment (h*i)	$5735.87
k	Holding period return [(j-c)/c*100]	37.31%

Hence holding period retun = 37.31%