Closed-End Fund Characteristics

What this video covers

• Why the initial public offering (IPO) price includes the underwriting spread and forces initial investors to pay a premium to net asset value (NAV)
• How closed-end funds trade on the secondary market after the IPO, with no continuous redemption back to the fund
• Why supply and demand, not NAV calculation, set closed-end fund share prices, and why most trade at a discount to NAV
• The exam trap of premiums versus discounts: primary market premium at IPO, then secondary market discount as the historical norm
• Why open-end funds generally cannot use leverage under the senior-securities limitation, while closed-end funds can
• The asset coverage ratios Sam the Supervisor enforces: 300% for debt and 200% for preferred stock
• The two penalties for falling below required asset coverage: dividend prohibition to common shareholders and ban on issuing additional senior securities until coverage is restored