CFA Level I · CFA Level I Exam · Portfolio Management: An Overview
An investor holds shares in a closed-end fund that trades at a price below its net asset value per share. Which statement about this situation is most accurate?
The fund trades at a discount because its price is below net asset value. Closed-end funds generally have a fixed number of shares after the initial offering and trade in the secondary market, without on-demand issuance or redemption at NAV.
- AThe fund trades at a discount, and the share count is generally fixed after the initial offeringCorrect
- BThe fund trades at a premium, and managers must redeem shares at net asset value on request
- CThe fund trades at a discount, and new shares are issued whenever investors demand them
Explanation
A price below NAV is a discount. Closed-end funds issue a fixed number of shares and investors trade them in the secondary market, so there is no creation or redemption at NAV on demand. The other options misstate either the discount/premium or the share issuance mechanism.
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