Explanation:
Closed-end mutual funds issue a fixed number of shares that trade on a stock exchange or in the over-the-counter market. Because these shares are traded on the open market, their price is determined by supply and demand, which means they can trade at a premium or a discount to their Net Asset Value (NAV). Unlike open-end funds, closed-end funds are not redeemed at their NAVs by the fund company. Therefore, statement IV is incorrect. Statements I, II, and III are correct characteristics of closed-end funds.
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Q.15 Consider the following statements regarding closed-end mutual funds:
I. The funds offer investors professional management
II. Shares at times trade at a discount to the NAV
III. Shares at times trade at a premium to the NAV
IV. Funds are redeemed at their NAVs
Which of the statements above is/are incorrect?
A
IV only
B
II and III only
C
II, III and IV
D
All of the above
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