Question

The net asset value of shares in a closed-end investment company is $36. An investor buys the shares for $34 in the secondary market. The company distributes $1 and after one year, the net asset rises to $42. The investor sells the shares for $43 in the secondary market. What is the percentage return on the investment

Answer 1

The percentage return on the investment is calculated by adding together the capital gains and dividends received, dividing by the purchase price, and multiplying by 100, resulting in a return of 29.41% for the investor.

Step-by-step explanation:

To calculate the percentage return on an investment in stocks, we need to consider both the dividends received and the capital gains from selling the stock. In this case, the investor bought shares at $34 and sold them for $43, while also receiving a $1 dividend. The investment's total return includes the capital gains ($43 - $34 = $9 per share) plus the dividend of $1 per share.

The total return per share is $10 ($9 from capital gains + $1 from dividends). To find the percentage return, we divide the total return by the original purchase price and multiply by 100: ($10 / $34) * 100 = 29.41%. Thus, the investor's percentage return on the investment is 29.41%.

Answer 2

Closed-End Investment Company

The percentage return on the investment is:

= = 29.41%

Step-by-step explanation:

a) Data and Calculations:

Net asset value of share = $36

Price paid by an investor = $34

Dividend distributed = $1

Net asset value after one year = $42

Selling price in the secondary market by the investor = $43

Total amount realized by the investor = $44 ($43 + $1)

Cost of investment = $34

Dollar return on the investment = $10 ($44 - $34)

Percentage return on the investment = Return on investment/Cost of investment * 100

= $10/$34 * 100

= 29.41%