10
QuizLong Text

Mutual Funds

Question 10 • 26-27 Ignite Financial Literacy Personal Finance - EL3403

You are a financial advisor with a client who purchased 100 shares of stock in a fund with a net asset value of $21.30 and an offer price of $21.45. Your client wants to make $20 per share on the stock when it is sold. The client calls you to find out why you have not sold the shares today, because they saw the stock listed with a net asset value of $41.30 and an offer price of $41.45. Explain to your client why you have not sold the shares.

Answer

Answer:

The shares have not been sold because mutual fund shares are redeemed at the NAV, not the offer price. The client paid $21.45 per share, so to earn $20 per share, the NAV must be $41.45. At the current NAV of $41.30, the profit would be only $19.85 per share.

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