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19 June, 14:03

XYZ Mutual Fund, an open-end investment company, has an NAV of $20 and a public offering price of $21.40. The prospectus states that the sales charge for purchases of fund shares of $25,000 through $49,999 is 4%. Approximately how many shares can the customer buy for $35,000?

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  1. 19 June, 14:18
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    1680 shares

    Explanation:

    Given that

    Sales charge = 4%

    Net asset Value = $20

    Amount = 35,000

    Therefore,

    Amount paid for sales charge

    = 35000 * 0.04

    = 1400

    So,

    The customer is left with 33,600 to buy shares.

    Since NAV of the mutual fund = $20

    So,

    Number of shares = 33600 : 20

    = 1680 shares.

    Note: in mutual fund open end investments, customers invest buy buying shares at net asset value (NAV). Hence why NAV was used in the calculations.
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