Question

Suppose you own shares in a stock index fund that tracks the value of the s&p...

Suppose you own shares in a stock index fund that tracks the value of the s&p 500. the firm that offers the fund recently imposed restrictions on the number of shares that may be redeemed for cash on a given day. how does this change in the funds operation affect the demand for this asset?

A. Demand shifts leftward
B. Demand shifts rightward
C. Demand does not change

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Answer #1

The correct answer is A.

Explanation

When the restriction on the number of shares that may be redeemed for cash is imposed on a particular index fund, The demand for the fund will decrease as the Liquidity for the investors will decrease. The investors in a capital market invests there because the one of the major factor is liquidity. Also the new and prospective investors will start moving towards the other fund managers that will reduce the demand for the fund of the firm.

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