FINRA Series 7Investment Information and Suitable RecommendationsMedium
A client invests $50,000 in a mutual fund with a 4% front-end load. If the Net Asset Value (NAV) per share is $10.00, how many shares will the client purchase?
- A4,900 shares
- B4,800 shares
- C5,000 shares
- D5,200 shares
Show answer & explanationAnswer & explanation
Correct answer: B. 4,800 shares
First, calculate the amount invested after the front-end load: $50,000 * (1 - 0.04) = $50,000 * 0.96 = $48,000. Then, divide this net investment amount by the NAV per share: $48,000 / $10.00 = 4,800 shares.
Why the other options are wrong
- A. Incorrect calculation.
- C. This would be the number of shares if there were no front-end load ($50,000 / $10 = 5,000 shares).
- D. Incorrect calculation.
Mutual Fund Front-End Load Calculation
A front-end load is a sales charge paid when an investor first purchases shares in a mutual fund. The load is deducted from the initial investment, and the remaining amount is used to purchase shares at the fund's Net Asset Value (NAV).
- Sales charge deducted upfront.
- Reduces the actual investment amount.
- Calculated before shares are purchased.
Memory trick: Load Off First, Then Buy Shares.