Coming to terms: Closed-end funds, market cap
The price of closed-end funds can swing higher or lower than their net asset value, reflecting supply and demand of the shares.
Q: What are “closed-end” funds?
A: Closed-end funds are mutual funds that act a lot like stocks. With regular mutual funds, if many people want to invest in them, more shares are simply created.
But when closed-end funds are created, a fixed number of shares are sold to the public, much like a stock’s IPO.
After that, the shares are usually traded in a secondary market.
The prices of regular mutual funds are calculated at the end of each trading day based on the value of the funds’ assets.
But the price of closed-end funds can swing higher or lower than their net asset value, reflecting supply and demand of the shares. Closed-end funds can also be more volatile than regular mutual funds, sometimes because they can employ leverage, borrowing money with which to invest.
Q: What does “market cap” mean?
A: A company’s market capitalization, or market cap, reflects the value the stock market is placing on it. To get it, multiply the total number of shares outstanding by the stock price.
The result can help you get a sense of whether the firm is overvalued or undervalued if you compare it to peers.
For example, General Electric’s market cap recently was $217 million: 10.5 billion shares times a stock price of about $20.70.
Q: What does it mean when I see that “today’s volume” for a stock is 15,800,000?
A: That means that 15.8 million shares of the stock changed hands that day.
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