Question

What is the major difference between the securities that open-end and closed-end investment companies may issue?

1) Open-end investment companies can issue an unlimited number of shares of their securities, while closed-end investment companies have a fixed number of shares that are traded on stock exchanges.
2) Open-end investment companies can issue bonds as part of their securities, while closed-end investment companies can only issue stocks.
3) Open-end investment companies can issue preferred stocks as part of their securities, while closed-end investment companies can only issue common stocks.
4) Open-end investment companies can issue mutual funds as part of their securities, while closed-end investment companies can only issue stocks.

Answer 1

The key difference is that open-end investment companies, typically mutual funds, can issue an unlimited number of shares, while closed-end companies have a fixed number of shares traded on stock exchanges, with prices determined by market demand.

Step-by-step explanation:

The major difference between the securities that open-end and closed-end investment companies may issue is that open-end investment companies can issue an unlimited number of shares of their securities, while closed-end investment companies have a fixed number of shares that are traded on stock exchanges. Option 1 is the correct answer to the student's question. Open-end companies are typically mutual funds that allow investors to buy shares directly from the fund at the net asset value, which can change daily based on the total value of the fund's portfolio. Closed-end companies, conversely, issue a fixed number of shares in an initial public offering and then these shares are bought and sold on stock exchanges, much like individual stocks, with their prices determined by market demand.