Which of the following describes a mutual fund's 'net asset value' (NAV)?

The net asset value (NAV) of a mutual fund represents the total market value of the fund's investments minus its liabilities. It is essentially the price per share that investors buy or sell, providing a clear indication of the fund's performance and is calculated at the end of each trading day. When calculating NAV, the fund adds up the market value of all the assets it holds, such as stocks, bonds, and cash, then subtracts any liabilities, which could include debts or fees owed.

While the first option discusses the price at which shares are exchanged, it captures the essence of NAV: it is directly linked to the total market value of the fund's holdings, which is reflected in the per-share price. Therefore, it is crucial for investors to understand NAV as it informs them of the current value of their investment in the mutual fund and is a key reference point for transactions. The concept of NAV is fundamental to the functioning of mutual funds, allowing investors to gauge their returns and make informed decisions.