investor with 1,000 shares of the Amazing Growth
fund places a redemption order for the shares before
the close of the market on June 18th. In the financial
pages of her local morning newspaper, dated June
21st, she sees the following information about
her fund. BID: $15.00 -- ASK: $16.00. If the fund
charges a 1% redemption fee, her redemption proceeds
The correct answer is a.
The investor placed her redemption order before the close of the market on Friday, so she will redeem at that day’s closing price. The morning newspaper for the following Monday will show Friday’s closing prices. The investor redeems at the BID (or NAV) next computed after the order is placed--forward pricing. The fund charges a 1% redemption fee, therefore: 1,000 shares × $15.00 = $15,000 × 1% = $150.00 redemption fee. $15, 000 - $150 = $14,850.
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