Question of the Week

Harry began a front-end load contractual plan, calling for $100 a month for 10 years. After 10 investments, he decides to cancel the plan when the NAV of the shares is $530. What will be the total amount of his cancellation check?

A) $880
B) $530
C) $605
D) $1,030

Answer:

The correct answer is A)

In a front-end load contractual plan, the investor will receive the NAV plus all sales charges greater than 15% of the gross investment after 45 days up to 18 months. Harry’s gross investment was $1,000; the plan company had taken 50% of that, or $500. The plan company can only keep an amount of the sales charge equal to 15% of the gross. The excess taken is added to the NAV and refunded. $1,000 × 15% = $150 that the plan company keeps. The company has taken $500 and must refund the excess. $500 - $150 = $350 sales charges refunded, + $530 NAV = $880.