Alex invested $10,000 in a mutual fund two and one-half years ago when the NAV of the fund was $25. Today, the NAV has risen to $28.30. Since the time of his original investment, Alex has obtained an additional 54.36 shares by reinvesting the fund distributions. The fund charges a contingent deferred sales charge of 7 percent the first year with the charge decreasing by 1 percent each year. How much money will he receive if he redeems his shares today?

Question

Quizplus · Accepted Answer

First, we calculate the value of Alex's investment today:
$10,000 / $25 NAV = 400 shares
54.36 additional reinvested shares
Total shares held = 454.36 shares
454.36 shares x $28.30 NAV = $12,858.39

Next, we calculate the contingent deferred sales charge:
Alex has held his shares for two and a half years, so the sales charge is reduced by 2 percent from the initial 7 percent charge:
2.5 years / 1 year = 2 years (rounded down)
7 percent initial charge - 2 percent reduction = 5 percent sales charge
5 percent sales charge x $12,858.39 = $642.92

Finally, we calculate the redemption proceeds:
$12,858.39 - $642.92 = $12,215.47

Therefore, the best choice is C, $12,215.47 as the redemption proceeds.

Alex Invested $10,000 in a Mutual Fund Two and One-Half