Chartered Institute of Stockbrokers (CISI) Professional Practice Exam

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How does the pricing of unit trusts differ from that of typical stocks?

Based on demand rather than the underlying asset value
Prices fluctuate unpredictably
Priced at their net asset value
Dependent on market sentiment

The correct answer is: Priced at their net asset value

Unit trusts are priced based on their net asset value (NAV), which represents the total value of the underlying assets divided by the number of outstanding units. This method ensures that the price reflects the actual value of the investments held within the trust at any given time. Investors buy and sell unit trusts at this calculated NAV, usually at the end of the trading day. This is a key distinction from typical stocks, which are traded on the open market and can fluctuate in price throughout the trading day based on supply and demand dynamics. In contrast to unit trusts, the prices of typical stocks are influenced by market sentiment, investor behavior, and external factors, which can lead to more erratic price movements. Unlike unit trusts, stocks do not have a straightforward pricing structure based solely on their underlying asset values, as their market prices can deviate from intrinsic values based on investor perceptions and trading activities.