Mutual Fund Public Offering Price (POP) Calculation Formula
An open-end investment company has a Net Asset Value (NAV) of $18.60 per share and imposes a front-end sales load of 7.0%. What is the Public Offering Price (POP)?
POP = NAV ÷ (100% - Sales Charge %) = $18.60 ÷ (1 - 0.07) = $18.60 ÷ 0.93 = $20.00 per share.
Complete Analysis & Legal Rationale
THE CRITICAL EXAM TRAP: The sales charge is always expressed as a percentage of the OFFERING price, NOT the NAV! Multiplying NAV by 1.07 ($18.60 × 1.07 = $19.90) is mathematically incorrect. You must divide NAV by the complement (0.93).
Mathematical Step-by-Step Derivation
- Step 1: Formula: POP = NAV ÷ (100% - Sales Charge %)
- Step 2: 100% - 7.0% = 93% (0.93 complement)
- Step 3: $18.60 ÷ 0.93 = $20.00 exact POP.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
$18.60 ÷ 0.93 = $20.00 exact POP.
Multiplies NAV by 1.07 ($19.90), a classic FINRA math trap.
Arbitrary deduction.
Overstates load.
Official Standard: Calculation of public offering price and sales charge ceilings.