Q:

An 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 will be:
a) $14,850
b) $15,000
c) $15,840
d) $16,000

A:

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.


RELATED FAQS

  1. Why would an investor opt for a partial redemption as opposed to a full redemption?

    Learn about the difference between a partial redemption and a full redemption, and why an investor might choose to partially, ...
  2. When are mutual fund orders executed?

    Discover when and how mutual fund shares are bought and sold each day, and find out how price is determined and when the ...
  3. Why would a company choose to repurchase in lieu of redeem?

    Learn the difference between a stock repurchase and a stock redemption, and find out about the reasons why a company might ...
  4. Can I sell mutual fund shares below their minimum intial purchase amount without ...

    Yes. You can freely buy and sell shares of a mutual fund regardless of any requirement for a minimal initial purchase amount ...
  5. What is the difference between redemption of shares and repurchase of shares?

    Sometimes, shares of stock offered by a company are not regular, market-driven common shares. Instead, they may be preferred ...
  6. Mandy Edwards owns 100 shares in the PruRock Value Fund. She could use a little ...

    The correct answer is b). The redemption of shares that have been issued by an open-end investment company, also known as ...
RELATED TERMS
  1. Redemption

    The return of an investor's principal in a fixed income security, ...
  2. Redemption Suspension

    A provision on a hedge fund preventing the withdrawal from the ...
  3. Run On The Fund

    A situation in which a hedge fund faces an increasing amount ...
  4. Redemption Fee

    A fee collected by an investment company from traders practicing ...
  5. Extraordinary Redemption

    A provision that gives a bond issuer the right to call its bonds ...
  6. Mandatory Redemption Schedule

    Specified dates when a bond issuer is required to redeem all ...
Hot Definitions
  1. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center