FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationProcessing Customer Orders and TransactionsHard
A registered representative receives a verbal order from a client to purchase $10,000 worth of XYZ Growth Fund shares. The fund's public offering price (POP) is $20.00, and the sales charge is 5%. How many shares will the client purchase?
- A525 shares
- B475 shares
- C487.5 shares
- D500 shares
Show answer & explanationAnswer & explanation
Correct answer: D. 500 shares
First, calculate the Net Asset Value (NAV) per share. If the POP is $20.00 and the sales charge is 5% of the POP, then the sales charge per share is $20.00 * 0.05 = $1.00. The NAV per share is POP - Sales Charge = $20.00 - $1.00 = $19.00. However, the question asks how many shares the client will purchase for $10,000 *at the POP*. The client is investing $10,000, and the POP is $20.00 per share. So, $10,000 / $20.00 = 500 shares. The sales charge is already included in the POP.
Why the other options are wrong
- A. Incorrect calculation.
- B. Incorrect calculation. ($10,000 / ($20.00 / 1.05)) is not the correct approach here.
- C. Incorrect calculation.
Mutual Fund Share Purchase Calculation
To find the number of shares purchased, divide the total investment amount by the Public Offering Price (POP) per share.
- POP already includes the sales charge.
- NAV is not directly used for share count in a loaded fund purchase.
- Total investment is the numerator, POP is the denominator.
Memory trick: Money in, POP out, shares you will shout.