Investment Company and. Variable Contracts Products Principals (Series 26) Practice Exam

How often must the value of a mutual fund share be calculated?

1. Once a week

2. Once per business day

3. Once a month

4. Once an hour

The correct answer is: Once per business day

The value of a mutual fund share must be calculated at least once per business day because mutual funds are required to calculate their net asset value (NAV) daily. This daily valuation process ensures that shares can be accurately bought and sold at the end of each trading day, reflecting the current market conditions and the performance of the underlying assets held by the mutual fund. This practice provides investors with an up-to-date valuation of their investment and maintains fairness in the buying and selling of shares by ensuring that all transactions are executed at the same price determined at the close of the market for that day. Calculating the NAV less frequently, such as weekly or monthly, would not provide real-time transparency or reflect the ongoing changes in the value of the assets, which could lead to unfair pricing for investors entering or exiting the fund. The option for valuing shares once an hour is not practical for mutual funds, as it would create unnecessary complexity without significant benefits, as mutual fund shares are not traded on the same active basis as stocks.