SIE Understanding Products and Their Risks Question 12: Answer and Explanation

Question: 12

Which of the following is a similarity between a mutual fund and a closed-end investment company?

• A. Shares may be purchased throughout the day.
• B. Shares may only be sold after the close of business.
• C. Shares are based on a portfolio of investments.
• D. Shares of preferred shares are redeemed by the issuer.

Correct Answer: C

Explanation:

C: Shares are based on a portfolio of investments. Choice A is true of closed-end investment company shares but not mutual funds. Choice B is true of mutual funds but not closed-end investment company shares. Choice D is not true of mutual funds because they do not issue preferred shares and is likely not true of investment company shares, even though preferred shares may be issued, because the closed-end investment company does not stand ready to redeem shares like a mutual fund does.