A closed-end fund starts the year with a net asset value of $12.00. By year-end, NAV equals

$12.10. At the beginning of the year, the fund was selling at a 2% premium to NAV. By the end of the year, the fund is selling at a 7% discount to NAV. The fund paid year-end distributions of income and capital gains of $1.50.

a. What is the rate of return to an investor in the fund during the year?

b. What would have been the rate of return to an investor who held the same securities as the fund manager during the year?

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a. Impressive Fund had excellent investment performance last year, with portfolio returns that placed it in the top 10% of all funds with the same investment policy. Do you expect it to be a top performer next year? Why or why not?

b. Suppose instead that the fund was among the poorest performers in its comparison group.

Would you be more or less likely to believe its relative performance will persist into the following year? Why?