FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationProcessing Customer Orders and TransactionsHard
A client wishes to purchase $25,000 worth of Class A shares of a mutual fund with a Net Asset Value (NAV) of $9.50 and a front-end sales charge of 5%. What is the Public Offering Price (POP) per share, and how many shares will the client purchase?
- APOP: $9.98; Shares: 2,500.00
- BPOP: $10.00; Shares: 2,500.00
- CPOP: $10.00; Shares: 2,375.00
- DPOP: $9.98; Shares: 2,505.01
Show answer & explanationAnswer & explanation
Correct answer: B. POP: $10.00; Shares: 2,500.00
First, calculate the POP per share. POP = NAV / (100% - Sales Charge %). POP = $9.50 / (1 - 0.05) = $9.50 / 0.95 = $10.00. Then, calculate the number of shares purchased: Total Investment / POP per share = $25,000 / $10.00 = 2,500 shares.
Why the other options are wrong
- A. Incorrect POP calculation. ($9.50 / 1.05) is wrong, but the number of shares from $25,000 / $10.00 is correct.
- C. POP is correct, but shares calculation is wrong ($25,000 * 0.95) or (25000 / 10.5).
- D. Incorrect POP calculation. ($9.50 / 1.05) and then shares based on that.
Mutual Fund Share Purchase Calculation
Calculating the Public Offering Price (POP) and the number of shares purchased for a given investment amount, considering NAV and front-end sales charge.
- POP = NAV / (1 - Sales Charge %)
- Number of Shares = Total Investment / POP
- Sales charge is a percentage of the POP, not the NAV.
Memory trick: To GET the POP, use NAV and the 'NET' percentage after charge. Shares are 'Total' / POP.