UNIT 02.01 005 Flashcards
The XYZ open-end growth fund charges no sales charge or redemption fee. An investor wishes to sell 1,000 shares and phones in a redemption request. The next computed public offering price is $9.50 per share. The investor will receive a check in the amount of
$9,500.
With no sales charge or redemption fee, the investor will receive the next computed price of $9.50 per share multiplied by the number of shares redeemed: $9.50 × 1,000 shares = $9,500.
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❓ Question:
An investor owns 1,000 shares of the XYZ open-end growth fund, which:
Charges no sales charge (no fee to buy),
Charges no redemption fee (no fee to sell).
The investor calls in to sell (redeem) the shares.
The next calculated public offering price (POP) is $9.50 per share.
👉 How much money will the investor receive?
✅ Correct Answer:
$9,500
🧠 Explanation:
In an open-end mutual fund, when you redeem (sell) shares:
You get the next calculated NAV (net asset value) per share, not the price at the time you call.
Since there are no sales or redemption fees, the full amount goes to the investor.
Here’s the math:
1,000shares×$9.50=$9,500
🧾 Key Rule:
This is an example of the forward pricing rule—you get the next price calculated after your order is received, not a price from earlier in the day.
A no-load fund sells its shares to the public
A) by a direct sale from the fund to the investor.
B) through a dealer and its sales representatives.
C) by underwriter only.
D) through a network of underwriters and dealers.
by a direct sale from the fund to the investor.
Because there is no sales charge (load), there is no underwriter; the fund sells directly to the public.
A client owns 100 shares of the RMBN fund. The fund is no load and its next calculated POP turns out to be $10 per share. If the fund has a 0.5% redemption charge and the client liquidated the entire account, proceeds would be
A) 1,000.
B) 950.
C) 1,005.
D) 995.
995.
Because this is a no-load fund, the POP after the entry of the redemption request and NAV are the same. Therefore, liquidating 100 shares at $10 per share results in a gross of $1,000. However, there is a 0.5% redemption fee that reduces the net proceeds by $5 ($1,000 × 0.005). Redemption fees for no-load funds are designed to offset the cost of fulfilling a redemption order and are limited to a maximum of 2%.
An investor must be provided with a statement of additional information about a mutual fund
A) annually.
B) at the same time she receives the prospectus.
C) upon request.
D) anytime after she receives the prospectus.
upon request.
An investor must be given the statement of additional information (SAI) within three business days of receipt of a request for one. The SAI typically contains the fund’s consolidated financial statements, including the balance sheet, statement of operations, income statement, and portfolio list at the time the statement was compiled.
