An open-end growth fund begins the trading day with total portfolio assets of \120,000,000… — FINRA SIE (Securities Industry Essentials)

An open-end growth fund begins the trading day with total portfolio assets of $\$120,000,000$ , total liabilities of $\$8,000,000$ , and $5,000,000$ shares outstanding. Before the close of trading, the fund experiences the following financial updates:
- Portfolio securities appreciate in market value by $\$4,000,000$ .
- The fund receives $\$1,500,000$ in cash dividend income from its portfolio investments.
- Investment advisory fees and operating expenses of $\$500,000$ are accrued as fund liabilities.

A retail investor places an order to purchase Class A shares of the fund prior to the 4:00 PM EST market close. The fund assesses a front-end sales load of $5.00\%$ . Based on forward pricing principles, what is the Public Offering Price (POP) per share that the investor will pay? (Express your answer in dollars rounded to two decimal places.)

Answer: 24.63 $

Answer

The Public Offering Price (POP) per share is $24.63.

To determine the Public Offering Price (POP) per share, first determine the fund's end-of-day Net Asset Value (NAV). Total assets equal

\$120,000,000 + \$4,000,000 + \$1,500,000 = \$125,500,000

. Total liabilities equal

\$8,000,000 + \$500,000 = \$8,500,000

. Net assets equal

\$125,500,000 - \$8,500,000 = \$117,000,000

. Dividing net assets by

5,000,000

shares outstanding yields an NAV per share of

\$23.40

. The Public Offering Price is calculated using the formula POP = NAV / (1 - Sales Charge %). Substituting

\$23.40 / (1 - 0.05) = \$23.40 / 0.95 = \$24.63157...

, which rounds to

\$24.63

Step-by-Step Solution

Calculate total end-of-day portfolio assets

$125,500,000

Add the initial assets (

120,000,000), portfolio market appreciation (

4,000,000), and cash dividends received ($1,500,000).

Calculate total end-of-day portfolio liabilities

$8,500,000

Add initial liabilities (

8,000,000) and newly accrued operating expenses/advisory fees (

500,000).

Compute Net Asset Value (NAV) per share

$23.40 per share

Subtract total liabilities from total assets ($117,000,000) and divide by the 5,000,000 shares outstanding.

Compute Public Offering Price (POP) per share

$24.63 per share

Apply the FINRA formula POP = NAV / (1 - Sales Charge %) because sales charges are expressed as a percentage of the offering price, not the NAV.

Key Concept

Forward pricing NAV calculation and Public Offering Price (POP) formula for Class A open-end fund shares.

Question

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

Topics

More questions from this topic