Money Market Fund

A money market fund seeks to maintain a stable net asset value of:

1. A.Whatever the market setsThis describes every other mutual fund, whose NAV floats with the portfolio. The money market fund is the deliberate exception: it holds very short, high-quality paper so that its per-share value can be held constant and the yield, rather than the price, absorbs the movement.
2. B.10 dollars per shareTen dollars is a common opening price for a newly launched fund, which is likely the association here. A launch price is a starting point that then moves; the money market target is a level the fund works to hold indefinitely.
3. C.100 dollars per shareThis borrows the par convention from bond quoting, where 100 is the reference point. Fund shares are not quoted that way, and the one-dollar target exists so that a shareholder's balance can be read directly as a dollar amount, which is what makes these funds usable like cash.
4. D.1.00 dollar per shareCorrect - the stable-1-dollar objective.

Why: Money market funds aim to hold a constant 1.00 dollar NAV per share.

A client needing capital preservation for a one-year goal is suited to:

1. A.A leveraged ETFDaily-reset leverage is a trading tool built for holding periods measured in days, not a place to park money for a year. Its value can erode in a flat but volatile market even when the underlying index goes nowhere, which is incompatible with preserving capital.
2. B.An aggressive growth fundAggressive growth accepts large short-term swings in exchange for long-term appreciation, a trade that only pays off with time the client does not have. Over a single year the swing dominates the return, so principal is genuinely at risk on the date the money is needed.
3. C.A long-term bond fundThis is the strongest distractor, because bonds carry a promise to repay and feel safe on that basis. The promise is only good at maturity: a long-term bond fund never matures, and a rise in rates can knock a substantial percentage off its share price well within a one-year window.
4. D.A money market fundCorrect - safety and liquidity.

Why: A money market fund preserves principal and provides liquidity for a short goal.

Which investment carries the greatest liquidity risk?

1. A.A listed large-cap common stockExchange-listed shares sell readily at posted prices.
2. B.A money market mutual fundMoney market funds are designed for immediate redemption.
3. C.An interest in a non-traded direct participation programCorrect. There is no active secondary market, so exiting promptly at fair value is difficult.
4. D.A Treasury billTreasury bills trade in the deepest, most liquid market there is.

Why: A direct participation program interest has no active secondary market, so an investor may be unable to sell promptly at a fair price. Listed stocks, Treasury bills, and money market funds are all readily converted to cash.

A customer wanting safety and liquidity for cash is suited to:

1. A.Junk bondsThis trades safety for yield. Below-investment-grade paper carries real default risk and often trades thinly when markets are stressed, which undermines both objectives at the same time.
2. B.Long-term equitiesEquities are readily salable, so the liquidity half looks satisfied. Safety is where this fails: money set aside as cash has to be intact when it is needed, and a stock can be down on the day the customer needs it.
3. C.T-bills or a money market fundCorrect - safe and liquid.
4. D.Uncovered optionsUncovered option positions are leveraged, wasting assets with open-ended risk of loss. That is the least appropriate home for funds the customer has designated as safe, accessible cash.

Why: T-bills or a money market fund offer safety and liquidity for cash.