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FRM Part I · FRM Exam Part I · Fund Management

An open-end fund has $600 million in assets and no liabilities, with 30 million shares. A front-end load of 4% applies to purchases (based on the offering price), and the fund charges a 0.80% annual 12b-1 fee that is already included in its NAV. An investor invests $9,600 and the fund's NAV per share is unchanged afterward. What is the investor's position value immediately after purchase, and what is the offering price per share?

The offering price is $20.83 and the position is worth $9,216. NAV is $20.00; with a 4% load on the offering price, price = 20/0.96 = $20.83. The investor receives 460.8 shares, worth $9,216 at NAV, since 4% of the payment went to the load.

  1. AOffering price $20.83; value $9,216Correct
  2. BOffering price $20.80; value $9,600
  3. COffering price $20.83; value $9,600
  4. DOffering price $20.00; value $9,216

Explanation

NAV = 600/30 = $20.00. Offering price = NAV/(1 − 0.04) = $20.833. Shares bought = 9,600/20.833 = 460.8; value at NAV = 460.8 × 20 = $9,216 (equal to 9,600 × 0.96). Option $20.80 wrongly uses NAV × 1.04, and $20.00 ignores the load.

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