Five years ago, you purchased 220.80 shares of a mutual fund. Since then, you have reinvested your fund dividends and acquired an additional 35.10 shares. The fund currently has an NAV of $37.60. The fund charges a contingent deferred sales charge of 5% for the first 2 years after which time the charge declines by 1% a year. How much money will you receive if you redeem all your shares today?

Question

Quizplus · Accepted Answer

First, we need to calculate the total number of shares:

220.80 shares + 35.10 shares = 255.90 shares

Then, we need to calculate the initial sales charge:

5% x NAV x total shares = 0.05 x 37.60 x 255.90 shares = $482.45

Since the investment is over 2 years old, the sales charge is reduced by 1% per year for a total reduction of 3% (5% - 2%). Therefore, the current sales charge is:

2% x NAV x total shares = 0.02 x 37.60 x 255.90 shares = $193.64

The redemption value of the investment is:

NAV x total shares = 37.60 x 255.90 shares = $9,617.44

Finally, we subtract the sales charges from the redemption value:

Redemption value - sales charges = $9,617.44 - $676.09 =$9,429.35

Therefore, the answer is B ($9,429.40)

Five Years Ago, You Purchased 220