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.


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