Closed-End Fund

B is correct. Closed-end funds trade at market prices determined by supply and demand, which can be above (premium) or below (discount) the NAV. Discounts often occur when investors sell shares due to liquidity needs, tax-loss harvesting, or negative sentiment about the fund's holdings or management.

A is incorrect because discounts don't necessarily indicate poor performance; the underlying portfolio (NAV) may be stable while the market price fluctuates. C is incorrect because closed-end funds can trade at premiums, discounts, or at NAV. there is no regulatory requirement for discounts. D is incorrect because closed-end funds trade on exchanges at market price, NOT at NAV like mutual funds.

A is correct. The defining characteristic of closed-end funds is that they issue a fixed number of shares in an initial public offering (IPO) and do not create or redeem shares afterward. In contrast, open-end mutual funds continuously issue new shares when investors buy and redeem shares when investors sell, always at NAV.

B is incorrect because closed-end funds can invest in various securities including stocks, bonds, and alternative assets. they are not limited to bonds. C is incorrect and actually reverses the truth: closed-end funds trade at market prices that can differ from NAV, while mutual funds transact at NAV. D is incorrect because both closed-end and open-end funds are regulated investment companies under the Investment Company Act of 1940.

B is correct. Calculate the premium/discount: (Market Price - NAV) / NAV = ($27.50 - $25.00) / $25.00 = $2.50 / $25.00 = 0.10 = 10.0% premium. Since the market price ($27.50) exceeds the NAV ($25.00), this is a premium.

A (9.1% discount) incorrectly uses the market price as the denominator: $2.50 / $27.50 = 9.1%. D makes the same calculation error but correctly identifies it as a premium. C (10.0% discount) uses the correct calculation but incorrectly labels it as a discount when the market price is above NAV.

C is correct (the EXCEPT answer). Investors CANNOT redeem shares directly with closed-end funds at NAV. This describes open-end mutual funds. Closed-end fund investors must sell their shares to other investors on secondary markets at the prevailing market price.

A is accurate: closed-end fund shares trade on exchanges like stocks, with prices determined by market supply and demand. B is accurate: closed-end funds have a fixed capitalization. they issue shares once in an IPO and do not create or redeem shares thereafter. D is accurate: closed-end funds commonly use leverage (borrowing) to enhance returns, particularly in bond-focused funds seeking higher distribution yields.

B is correct. Statements 1, 3, and 4 are accurate.

Statement 1 is TRUE: The fund trades at $19.00 while NAV is $21.50, representing a discount of ($19.00 - $21.50) / $21.50 = -11.6%.

Statement 2 is FALSE: After the IPO, closed-end funds do NOT issue additional shares. New investors must purchase shares on the secondary market from existing shareholders, not from the fund itself. The IPO price of $20 is no longer relevant.

Statement 3 is TRUE: Closed-end funds can use leverage (borrow money) to invest in additional securities. This is common in bond and real estate funds seeking to enhance returns and distribution rates.

Statement 4 is TRUE: Closed-end fund market prices are determined by investor supply and demand on exchanges, which can diverge significantly from NAV based on sentiment, liquidity needs, and market conditions.