The market price of shares of a closed-end investment company is:

• A. Determined by the supply and demand for the stocks held in the mutual fund's portfolio.
• B. Based on the net asset value per share of the investment company.
• C. Fixed by the sponsor.
• D. Determined by the supply and demand for the shares of the closed-end investment company.

Answer: (D)

In a closed-end fund, the price you pay for its shares is set by the forces of supply and demand for the shares themselves on the market. The fund has a fixed number of shares, and its net asset value per share is a separate measure calculated from the fund’s assets minus liabilities divided by shares outstanding. Because market demand can be higher or lower than that NAV, the trading price can trade at a premium or a discount to NAV. This is why the market price isn’t tied directly to the fund’s portfolio in real time, nor fixed by the sponsor. The price is determined by how much investors are willing to pay for the shares in the market.