SIE Understanding Products and Their Risks Practice Question 53

Correct Answer: C

Explanation:

C: Choice C is correct because, rather than a follow-on offering, mutual funds have what amounts to a continual initial public offering (IPO), which means they continually offer newly-issued shares when investors place buy orders. Mutual funds continually redeem those shares when offered for sale by investors. UITs have an initial public offering and may have a follow-on offering. Choice A is incorrect because the units of many UITs trade throughout the trading day on an exchange, whereas a mutual funds' orders are executed only after the trading day ends. Choice B is incorrect because a UIT's assets are typically fully invested and have no active investment management. In contrast, a mutual fund's assets are usually not fully invested but are actively managed, so cash equivalents are held after investments are sold, while waiting for target investment purchases. Choice D is incorrect because a mutual fund's share value is determined daily after the close of the market. Its shares do not trade on an exchange, but a UIT's units typically trade on an exchange.