A retail investor asks a registered representative to explain how transactions in open-end mutual fund shares are executed. Which of the following statements accurately describes the primary trading and pricing mechanism of an open-end management investment company?
- Shares are continuously issued and redeemed directly with the fund sponsor at the next calculated Net Asset Value (NAV).Answer
- BShares trade continuously between investors on secondary stock exchanges based on real-time supply and demand throughout the day.
- CShares are bought and sold in the secondary market at fixed discount rates set during the fund's initial public offering.
- DShares may be purchased on margin under Regulation T immediately upon issuance during the fund's continuous public offering.
Answer
Shares of open-end mutual funds do not trade in the secondary market; instead, they are continuously issued and redeemed directly with the fund at the next calculated Net Asset Value (NAV).
Open-end mutual funds issue new shares and redeem existing shares directly with investors. All transactions are priced at the next computed Net Asset Value (NAV) per share (forward pricing), rather than trading among investors on a secondary market exchange.
Step-by-Step Solution
Key Concept
Open-End Investment Company Pricing and Redemption Mechanics
Estimated Time:45s