How do closed-end fund shares trade compared to common stocks?

How do closed-end fund shares trade compared to common stocks?

• A. They are valued based on asset value
• B. They trade like common stocks
• C. They are only available for private placement
• D. They can only be traded at a premium

Answer: (B)

Closed-end fund shares trade like common stocks because both types of securities are bought and sold on an exchange. This means that their prices fluctuate throughout the trading day based on supply and demand, similar to how common stocks operate. Investors can buy or sell closed-end fund shares at market prices, which can be different from the fund's net asset value (NAV), just like common stocks may trade above or below their intrinsic value. While closed-end funds may have unique features—such as being limited in the number of shares outstanding, leading to potential trading at a premium or discount relative to their NAV—this does not affect the fundamental aspect of their trading structure. Investors can engage with closed-end funds as they would with typical stock transactions, using the same brokerage services and experiencing similar liquidity.

Closed-end fund shares trade like common stocks because both types of securities are bought and sold on an exchange. This means that their prices fluctuate throughout the trading day based on supply and demand, similar to how common stocks operate. Investors can buy or sell closed-end fund shares at market prices, which can be different from the fund's net asset value (NAV), just like common stocks may trade above or below their intrinsic value.

While closed-end funds may have unique features—such as being limited in the number of shares outstanding, leading to potential trading at a premium or discount relative to their NAV—this does not affect the fundamental aspect of their trading structure. Investors can engage with closed-end funds as they would with typical stock transactions, using the same brokerage services and experiencing similar liquidity.