Question

Closed-end funds sell shares in a fixed basket (portfolio) of securities (as distinguished from ordinary mutual funds, which continuously buy and sell shares of securities). Consider the net asset value and the market price for Sector Equity Funds, as shown in Table 11.3.3. While you might expect each fund to sell (the market price) at the same price as the sum of its components (the net asset value), there is usually some discrepancy.
a. How strong is the relationship between the net asset value and the market price for these closed-end funds?
b. Are the net asset value and the market price significantly related, or is it as though the market prices were randomly assigned to funds? How do you know?
c. Find the least-squares line to predict market price from net asset value.
d. Does the slope of the least-squares line differ significantly from 1? Interpret your answer in terms of this question: Could it be that a one-point increase in net asset value translates, on average, into a one point increase in market price?
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  • CreatedNovember 11, 2015
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