Big deal's market-based holding period return for the year. the market premium/discount hurt or adds value to the investor's return by
NAV (Dividend + capital gain + Change in NAV)/Beginning NAV
Beginning NAV = 10.20, Ending NAV = 1.39, Dividend = 0.35, capital gain 0.90.
NAV based HPR = (0.35 +0.90 + (11.59-10.20))/10.20= 25.88%
Answer a: 25.88%.
Market based HPR = (1+ PremiumNAV1 + (dividend + capital gain) -(1- Discount)"NAVO }/((1-Discount)"NAVO)
NAVO=10.20, NAV1 = 11,59, Premium= 3%, discount = 16%
Market based HPR = (1+0.03)*11.59+ (0.35+0.90)- (1-0.16) 10.20)/(1- 0.16)*10.20)
Market-based HPR= 53.92%
Answer b; 53.92%
Market discount is applied to the purchase price and market premium is applied to the selling price. So it adds value to the
investor return or benefit to the shareholder
Market based HPR = (1-Discount)"NAV1 DISTRIBUTION-(1+ Premium)" NAV0 /((1+ Premium)"NAVO)
Market based HPR = (1-0.03) 11.59 +(0.35+0.90) - (1+0.16)*10.20)/(1+ 0.16)*10.20)
Market based HPR = 5.58%
Because the market premium is applied to the purchase price and the discount is applied to the ending price. So HPR is significantly lower.
Investor returns, also called dollar-weighted returns, take into account all cash inflows and outflows from buying and selling, as well as the growth of the Fund's assets.
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