SIE Exam Question 981: Answer and Explanation

Question: 981

Which of the following is/are correct regarding the capital structure of closed-end mutual funds?

(1) A closed-end mutual fund has a fixed number of shares that, after original issue, trade on the secondary market.

(2) The price an investor pays when buying shares of a closed-end mutual fund is based on supply and demand.

• A. (1) only
• B. (2) only
• C. Both (1) and (2) are correct.
• D. Neither (1) or (2) are correct.

Correct Answer: C

Explanation:

A closed-end mutual fund has a fixed number of shares that, after original issue, trade on the secondary market. The price an investor pays when buying shares of a closed-end mutual fund is based on supply and demand.