Question

You invested $10,000 in a mutual fund 18 months ago when the NAV of the fund was $40. You have not acquired or sold any shares since that time. Today, the NAV is $32. The fund charges a contingent deferred sales charge of 5 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

Answer #1

Answer to the question :

Given : Amount invested $10,000

NAV at the time of investment = $40 per unit

Number of units purchsed = $10,000/40

=250 units

NAV after 18 months of purchase = $32 per unit

Contingent deffered sales charges are 5% for the first year and decrease by 1% for each year holding i.e. 4% for year 2, 3% for year 3 and so on.

Since in the given case investment holding period is 18 months therefore contingent deffered sales charges are 4%

Therefore amount recieved by the investor if he redeemed his shares today

= Number of units * NAV at the time of redemption -Deferred sales charges @4%

=250 units * $32 per unit - (250units * $32 per unit * 4% )

= $7,680

Amount received by the investor if he redeems his shares today is $7,680 against his invesmtment of $10,000 made by his 18 months ago.

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