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An investor places a mutual fund purchase order at 11 am. Which price fills the order?
AThe NAV struck at the close of the previous day
BThe market price quoted at the moment of the order
CThe next NAV calculated after the order is placed
DThe average of the day's high and low share prices
Answer & Solution
Correct answer: C. The next NAV calculated after the order is placed
1. Mutual funds sell and redeem shares only at net asset value, never at a negotiated market price.
2. The NAV that applies is the one calculated after the order is placed, not one already struck.
3. Funds price their shares each business day, typically after the major United States exchanges close.
4. So an order entered at 11 am is filled at that evening's NAV, and the investor does not know the price when ordering.
5. The previous day's NAV is stale and would let an investor trade on information the fund has already priced in.
_Source: US SEC Office of Investor Education and Advocacy, "Mutual Funds and ETFs: A Guide for Investors", section How Mutual Funds Work_
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