A retail investor notices that shares of a publicly listed closed-end management investment company are trading at a price lower than the fund's published Net Asset Value (NAV) per share. Which of the following statements correctly explains why closed-end fund shares can trade at a discount to their NAV?
- Closed-end fund shares trade on the secondary market at prices established by supply and demand rather than through fund redemptions at NAV.Cevap
- BThe fund manager is required by SEC regulations to adjust the market price downward to reflect unpaid management advisory fees.
- CInvestors purchasing closed-end fund shares on an exchange are acquiring newly issued shares directly from the fund issuer at forward pricing.
- DFederal regulations classify closed-end fund shares as non-marginable securities, forcing market makers to mark down share prices.
Cevap
Closed-end fund shares trade on secondary markets where market prices are determined by investor supply and demand, allowing them to trade at a premium or discount to their Net Asset Value (NAV).
Closed-end investment companies issue a fixed number of shares during an initial public offering. Afterwards, those shares trade on secondary markets such as stock exchanges. Because the fund does not stand ready to redeem its shares daily, the market price is determined strictly by supply and demand, allowing shares to trade at either a premium or a discount to the fund's Net Asset Value (NAV).
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Anahtar Kavram
Secondary market pricing dynamics of closed-end investment companies