A Major Question in Modern Finance Regarding Closed-End Investment Companies

question 17

Multiple Choice

A major question in modern finance regarding closed-end investment companies is

• A) Why do these funds sell at discounts?
• B) Why do the discounts differ between funds?
• C) What are the returns available to investors from funds that sell at a large discount?
• D) Choices a and b only
• E) All of the above

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Definitions:

Long-run Equilibrium

A state in economics where all factors of production are fully adjusted to the market condition and all economic agents have no incentive to change their behavior.

Consumer Demand

The desire and willingness of consumers to purchase a certain quantity of goods or services at various price points, at a particular time.

Competitive Increasing-cost Industry

An industry where supply costs increase as output expands, often because resources become scarcer or harder to obtain as production grows.

Long-run Equilibrium

A state in which all firms in a perfectly competitive market earn zero economic profits, with no incentives for new firms to enter or existing firms to exit.