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Series 7 practice questioneasyPackaged Products — Mutual Funds

What is the primary difference between an open-end mutual fund and a closed-end fund?

  1. AOpen-end funds trade on exchanges; closed-end funds do not
  2. BOpen-end funds charge higher management fees than closed-end funds
  3. CClosed-end funds always trade at a premium to NAV
  4. DOpen-end funds continuously issue and redeem shares at NAV; closed-end funds have a fixed number of shares that trade on exchanges✓ Correct answer
Explanation

Why D — Open-end funds continuously issue and redeem shares at NAV; closed-end funds have a fixed number of shares that trade on exchanges

Open-end mutual funds continuously issue and redeem shares directly with investors at the fund's net asset value (NAV). Closed-end funds issue a fixed number of shares through an IPO, and those shares then trade on secondary markets, where they may trade at a premium or discount to NAV.

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