FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationRegulatory Fundamentals and General Product KnowledgeMedium
A client has invested in a mutual fund with a front-end load. The fund has a Net Asset Value (NAV) of $19.00 and a sales charge of 5%. What is the Public Offering Price (POP) per share?
- A$19.95
- B$20.90
- C$19.00
- D$20.00
Show answer & explanationAnswer & explanation
Correct answer: D. $20.00
The Public Offering Price (POP) for a mutual fund with a front-end load is calculated by dividing the NAV by (100% - sales charge percentage). So, $19.00 / (1 - 0.05) = $19.00 / 0.95 = $20.00.
Why the other options are wrong
- A. This is an incorrect calculation, likely $19.00 * 1.05, which is not how POP is calculated for front-end loads.
- B. This is an incorrect calculation; possibly multiplying NAV by 1.10.
- C. This would be the NAV, not the POP with a sales charge.
Public Offering Price (POP)
The price at which new mutual fund shares are offered to the public, including any sales charges.
- For front-end load funds: NAV / (100% - Sales Charge Percentage).
- For no-load funds, POP = NAV.
- The investor pays the POP to purchase shares.
Memory trick: POP is what you pay, NAV is what it's worth, sales charge is the 'extra'.