Question

If a mutual fund has a front-end load of 5%, what is the purchase price per unit paid by the investor if the net asset value per unit (NAVPU) is $10.00 at the time of purchase?

Answer 1

An investor will pay $10.50 per unit when purchasing a mutual fund with a 5% front-end load and a NAVPU of $10.00. The purchase price is calculated by multiplying the NAVPU by 1 plus the front-end load percentage.

Step-by-step explanation:

If a mutual fund has a front-end load of 5%, the purchase price per unit paid by the investor is more than the net asset value per unit (NAVPU). The NAVPU is the value of one unit of the mutual fund's assets minus the mutual fund's liabilities, divided by the number of units. With a NAVPU of $10.00 and a front-end load of 5%, the investor is charged an additional 5% on the NAVPU at the time of purchase.

To calculate the purchase price per unit, you multiply the NAVPU by 1 plus the front-end load percentage:

Purchase Price = NAVPU × (1 + Front-End Load Percentage)

• Purchase Price = $10.00 × (1 + 0.05)
• Purchase Price = $10.00 × 1.05
• Purchase Price = $10.50

Therefore, the investor will pay $10.50 per unit when purchasing a mutual fund with a 5% front-end load and a NAVPU of $10.00.