Question of the Week

An investor opened a ten-year, $100/month front-end load periodic payment plan 14 months ago which she has now decided to terminate.  The net asset value (NAV) of the shares held by the plan company is $630.  She will receive a termination check for what amount?

a) $1,400
b) $770
c) $630
d) $1,120


Answer: The correct answer is d)

For the first 18 months of a front-end load contractural plan, the investor will be refunded the sales charges taken, minus an amount equaling 15% of the gross investments. This is added to the NAV for the total termination check. In the example above, the plan company has taken $700 (50%) in sales charges but may only keep 15% × $1,400 = $210. Subtract the amount the company keeps from the amount taken $700 - $210 = $490 the amount that must be refunded. $490 + $630 NAV = $1,120.