Series 7 practice questionmediumPackaged Products — Mutual Funds
A mutual fund charges a redemption fee of 2% on shares held less than 90 days. An investor purchased 1,000 shares at $20 per share 60 days ago. If the current NAV is $22, what is the redemption fee?
- A$400
- B$220
- C$500
- D$440✓ Correct answer
Explanation
Why D — $440
The redemption fee is calculated on the current value of the shares being redeemed, not the original purchase price. Current value = 1,000 shares x $22 = $22,000. Redemption fee = $22,000 x 2% = $440. Redemption fees differ from CDSCs in that proceeds go back to the fund (to protect remaining shareholders) rather than to the distributor.
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