close-end fund question question

atate2007

The net asset value of a closed-end mutual fund is $11.20, and the share price is $10.00. The discount or premium is closest to:

The answer is: 10.7% discount.

(SP - NAV) / NAV =

(10.00 - 11.20) / 11.20 = −0.107


why is this a discount instead of premium? and why can't I calculate as (NAV-SP)/SP?

totally confused..someone help?? thx!

dontknow1987

got it..thanks for explanation!

mnieman

Its all relative to the nav... it costs 10 but the value of the assets is 11.2 so thats why its trading at a discount...

You use nav in the denominator because you are trying to figure out what % of the nav the premium or discount is.