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Answer: An immediate order to buy shares, at 10 am, can specify the total dollar amount but will know neither the exact NAV nor exact number of shares purchased
### Correct answer: C An **open-ended mutual fund** is priced once per day at its **net asset value (NAV)**, which is calculated from the fund's total assets minus liabilities, divided by shares outstanding. #### Check the statements: - **A is false**: Total assets = $9.30m + $1.00m + $0.50m = **$10.80m** NAV per share = $10.80m / 1.20m = **$9.00 per share**, not $7.75. - **B is false**: Reinvested dividends are still generally **taxable** to the investor in a taxable account. - **C is true**: At 10 am, the investor can place a dollar-based order, but because an open-end fund's NAV is determined later (at the end of the trading day), the investor will not know the exact NAV or exact number of shares at the time of order. - **D is false**: Open-end mutual funds do **not** have a fixed number of shares outstanding; they create and redeem shares as investors buy and sell. Therefore, **C** is the only true statement.
Author: Manit Arora
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Q-705.1. America's Best Fund (Class A) is an open-ended mutual fund with 1.20 million shares outstanding. Currently, it is 10 am U.S. eastern standard time (EST) in the morning, and the fund owns the following:
$9.30 million in large-cap equities,$1.0 million in short-term U.S. Treasury bills; aka, the risk-free asset, and$500,000 in cashWhich of the following statements is TRUE?
A
The fund's net asset value (NAV) is about $7.75 per share
B
If the fund reinvests dividends earned on the equities, the fund's investors are not taxed on these reinvested dividends
C
An immediate order to buy shares, at 10 am, can specify the total dollar amount but will know neither the exact NAV nor exact number of shares purchased
D
Unless and until the fund issues additional shares in a secondary offering or initiates a share buyback, the number of shares outstanding will remain fixed at 1.20 million
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