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CP1 Revision note book 3 page 28-29: Q33

Y

yuli2513

Very Active Member
Hi.

In the third bullet point, it is mentioned that share prices in closed-ended funds are also more volatile than the prices of the underlying equities because the size of the discount can change. I am wondering what the discount is about here.

In addition, Q33 (on page 11 asks for the eight main differences between investment trusts and unit trusts, and in the answer the differences between closed-ended and open-ended funds are compared, I am wondering if I am missing out some connections between them?

Thanks in advance for looking into this!
 
Hi,

The course notes have some additional commentary around your first question:
"Investment trusts are companies and can borrow, eg by issuing loan capital, like any quoted company. Gearing results in more volatile but higher expected returns to shareholders. Not all investment trusts borrow, so these comments apply only to those that do."

With regards to your second question, the course notes (the solutions to Q33) cover the main differences between the two - I am sorry but I'm not sure what connections you may be missing here - the course notes are quite comprehensive here. Sorry!

Thanks
Aman
ActEd Tutor
 
Hi - just to add quickly: the connection between the question and answer wording is simply that investment trusts are closed-ended and unit trusts are open-ended (which, as Aman has said, is set out in the course notes - eg see the answer to Q31).
 
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