FRM Part I · FRM Exam Part I · Fund Management
An open-end mutual fund has net assets of $412.5 million after deducting liabilities and has 25 million shares outstanding. Investors buy and redeem shares at the end of the trading day. At what price does an investor transact?
The investor transacts at $16.50, the end-of-day net asset value per share ($412.5 million divided by 25 million shares). Open-end funds create and redeem shares at NAV, so market-driven premiums or discounts do not apply as they do for exchange-traded closed-end funds.
- A$16.50, the net asset value per share at the day's closeCorrect
- B$16.50 plus a premium set by market demand on an exchange
- C$16.50 less a discount set by the fund's board each day
- DThe intraday price at which the fund's last holding traded
Explanation
NAV per share = $412.5 million / 25 million = $16.50. Open-end funds issue and redeem shares directly with the fund at end-of-day NAV, so there is no market premium or discount. Premiums and discounts arise only for closed-end funds traded on exchanges.
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