May I know why the answer will use (NAV) instead of the market price to calculate the rate of return? I thought closed end fund could be traded in market and therefore there will be discount or premium to the NAV and therefore using market price to calculate Rate of return is more appropriate ? Thank you.

A closed-end fund starts the year with a net asset value of $13. By year-end, NAV equals $13.20. At the

beginning of the year, the fund is selling at a 3% premium to NAV. By the end of the year, the fund is selling

at a 8% discount to NAV. The fund paid year-end distributions of income and capital gains of $1.60.

An investor holding the same portfolio as the fund manager would have earned a rate of return based on

the increase in the NAV of the portfolio:

Rate of return = ((NAV) + distributions ) / start of the year NAV = ( 0.2+1.6 ) / 13 = 13.85%