Use the information in the table below to answer the following question.
| Name of Fund | NAV | Offer Price |
| :----------- | :------- | :---------- |
| Upton Group | $18.47 | $18.96 |
| Green Energy | $17.29 | $18.01 |
| TJH Small-Cap| $18.43 | $19.05 |
| WHI Health | $20.96 | NL |
For which of the funds shown would you pay the most commission on the purchase of 100 shares?
A. Green Energy
B. TJH Small-Cap
C. Upton Group
D. WHI Health
Answer (2)
Calculate the commission for Upton Group: 100 × ( 18.96 − 18.47 ) = $49.00 .
Calculate the commission for Green Energy: 100 × ( 18.01 − 17.29 ) = $72.00 .
Calculate the commission for TJH Small-Cap: 100 × ( 19.05 − 18.43 ) = $62.00 .
WHI Health has no load (NL), so the commission is $0.00. Green Energy has the highest commission: G ree n E n er g y .
Explanation
Understanding the Problem We are asked to determine which fund would result in paying the most commission on the purchase of 100 shares. The commission is the difference between the offer price and the net asset value (NAV). We need to calculate the commission for each fund and then identify the largest one.
Calculating Upton Group Commission First, let's calculate the commission for Upton Group. The offer price is $18.96 and the NAV is $18.47. The commission per share is: 18.96 − 18.47 = 0.49 For 100 shares, the commission is: 100 × 0.49 = $49.00
Calculating Green Energy Commission Next, let's calculate the commission for Green Energy. The offer price is $18.01 and the NAV is $17.29. The commission per share is: 18.01 − 17.29 = 0.72 For 100 shares, the commission is: 100 × 0.72 = $72.00
Calculating TJH Small-Cap Commission Now, let's calculate the commission for TJH Small-Cap. The offer price is $19.05 and the NAV is $18.43. The commission per share is: 19.05 − 18.43 = 0.62 For 100 shares, the commission is: 100 × 0.62 = $62.00
Calculating WHI Health Commission Finally, for WHI Health, the offer price is marked as 'NL', which stands for 'No Load'. This means there is no commission charged. Commission = $0.00
Determining the Highest Commission Comparing the commissions for 100 shares:
Upton Group: $49.00
Green Energy: $72.00
TJH Small-Cap: $62.00
WHI Health: $0.00 The highest commission is $72.00, which is for Green Energy.
Examples
Understanding commissions is crucial when investing in funds. For instance, if you're investing for retirement and plan to buy and hold shares for a long time, a higher commission can significantly reduce your initial investment's growth potential. By comparing commissions, you can make informed decisions to maximize your returns. This is similar to comparing prices at different stores to get the best deal, ensuring your money works harder for you.
After calculating the commissions for each fund, Green Energy has the highest commission of $72.00 for the purchase of 100 shares. Therefore, the correct answer is Green Energy.
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