This doesn't make sense to me

I am confused with the wordings of the explanation.

“Purchase price of a closed-end fund can be above, below or exactly at NAV”

“Only closed-end funds would have a purchase price lower than NAV”

This doesn’t make sense to me.

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Hi @FoxMcCloud,

The key word is in the question is: “Which of the following must be prices for a publicly traded fund?”

All of the options are possible prices for a publicly traded “closed-end” fund. However, the three other answers could possibly be open-end funds. An open-end fund will not have the purchase price less than the NAV, so we can conclude that those prices must be for a closed-end fund.

Also, this is a good question to use the process of elimination. One of the choices has NAV = purchase price, one has NAV < purchase price, and two have NAV > purchase price. Even without the actual knowledge about fund pricing, you can eliminate the two choices where NAV > purchase price (because they can’t both be correct).

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Hi @FoxMcCloud! Thanks for reaching out about this one.

Closed-end (publicly traded) and open-end (mutual) funds are often compared and contrasted. The cheapest price a mutual fund can be purchased at is its NAV. If there’s a sales charge, the investor will pay the POP, which is the combination of the NAV and the sales charge (load). Here’s a link to the chapter we have this covered in.

Closed-end funds are traded in the secondary market. While the NAV of the fund represents its value based on the current market price of the securities in the portfolio, the market ultimately determines its trading price. A closed-end fund may have an NAV of $20, but can trade at $18, $19, $20, $21, $22, or any other price. Supply and demand in the market ultimately determines that.

Bottom line - the cheapest price a open-end (mutual) fund can be purchased at is its NAV. There is no “cheapest price” for closed-end (publicly traded) funds, therefore it’s the only fund we care on the exam that can trade below NAV. If an investor purchases a fund below its NAV, it must be a closed-end fund.

I hope this helps!


That totally made sense!

I must have read over the “must” keyword in the question.

Thanks for clarifying!

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