Series 7 practice questionhardPackaged Products — Mutual Funds
A client owns Class C shares purchased 8 months ago. If the fund charges a 1% CDSC for redemptions within 12 months, and the shares have a current value of $25,000, what is the CDSC if the client redeems all shares?
- A$0
- B$125
- C$250✓ Correct answer
- D$500
Explanation
Why C — $250
Class C shares typically carry a small CDSC (usually 1%) if redeemed within the first 12 months. Since the client purchased 8 months ago (within the CDSC period), the charge applies: $25,000 x 1% = $250. After 12 months, the CDSC expires and shares can be redeemed without a back-end charge, though Class C shares continue to carry higher 12b-1 fees.
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