SIE Understanding Products and Their Risks Question 58: Answer and Explanation

Question: 58

Which of the following is correct about how a municipal fund security is like an open-end investment company (mutual fund)?

• A. Neither is issued by a governmental unit.
• B. Both hold only municipal bonds.
• C. Their value varies with the sum of the market values of all securities held.
• D. They both can be local government investment pools (LGIPs).

Correct Answer: C

Explanation:

C: Choice C is correct because a municipal fund security and a mutual fund are both valued by the sum of the market values of the securities in the fund. Choice A is incorrect because municipal fund securities are issued by governmental units, and mutual funds are issued by companies. Choice B is incorrect because municipal fund securities and mutual funds can hold equities. Choice D is incorrect because municipal fund securities can be LGIPs, whereas mutual funds cannot be LGIPs.