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Zorluk: OrtaInvestment Companies and Managed Funds

An investor purchases Class A shares of an open-end mutual fund when the fund's Net Asset Value (NAV) is $19.00\$19.00 per share. If the mutual fund carries a front-end sales charge of 5%5\%, what is the Public Offering Price (POP) per share, in dollars, that the investor will pay?

Cevap: 20 $

Cevap

The Public Offering Price (POP) per share is $20.00.
To determine the Public Offering Price (POP) for mutual fund shares with a front-end sales load, divide the Net Asset Value (NAV) by (100% minus the Sales Charge %). Dividing 19.00by0.95yields19.00 by 0.95 yields 20.00. This ensures that the 5% sales load (1.00)isevaluatedagainstthetotalpurchaseprice(1.00) is evaluated against the total purchase price ( 20.00), leaving the remaining $19.00 credited to the fund's NAV.

Adım Adım Çözüm

1
Identify the standard POP formula for mutual fund Class A shares.
The formula is POP = NAV / (1 - Sales Charge %).
Front-end sales loads on open-end funds are expressed as a percentage of the Public Offering Price, not as a percentage of the Net Asset Value.
2
Substitute the NAV of $19.00 and sales load of 5% (0.05) into the formula.
POP = 19.00/(1−0.05)=19.00 / (1 - 0.05) = 19.00 / 0.95.
The complement of the sales load percentage (95%) represents the fraction of the POP that goes into net assets.
3
Perform the division to find the total POP per share.
POP = $20.00.
A POP of 20.00witha520.00 with a 5% front-end load results in a 1.00 sales charge (20.00∗0.05)andleavesexactly20.00 * 0.05) and leaves exactly 19.00 invested in NAV.

Anahtar Kavram

Public Offering Price (POP) calculation with front-end sales charge
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Investment Companies and Managed Funds

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