FINRA Series 7Investment Information and Suitable RecommendationsEasy
A registered representative is explaining money market mutual funds to a conservative client who wants principal stability. Under SEC Rule 2a-7, money market funds typically seek to maintain a stable net asset value of:
- AA value that floats daily based on the portfolio's market value
- B$100.00 per share
- C$1.00 per share
- D$10.00 per share
Show answer & explanationAnswer & explanation
Correct answer: C. $1.00 per share
Money market mutual funds are designed under SEC Rule 2a-7 to maintain a stable $1.00 net asset value per share by investing in high-quality, short-term instruments and using amortized cost accounting (subject to certain exceptions for institutional prime funds).
Why the other options are wrong
- A. This describes floating NAV rules for institutional prime/muni funds, not the traditional retail target.
- B. No standard money fund targets this NAV.
- D. This is a typical mutual fund share price convention, not the money market fund target.
Money Market Fund Stable NAV
Money market mutual funds traditionally seek to maintain a constant $1.00 NAV per share by investing in short-term, high-quality debt instruments.
- Governed by SEC Rule 2a-7
- Retail and government funds use amortized cost to maintain $1 NAV
- Institutional prime/muni funds must use floating NAV
Memory trick: 'A buck a share, safe to spare' — money funds keep it at $1.