I find your explanation on NAVs and POPs confusing:
If it were me, I’d start by noting that POP = NAV + SC when given in dollars, then back out the fractional calculations. Otherwise I have to read the text several times to figure out what’s going on.
Actually, the more I think about it the more confused I am as to why you would set up the equation for POP in this way:
POP = NAV/(100% - SC%)
How is this not equivalent to saying
POP = NAV + (NAV*SC)?
Why present it the first way instead of the second way?
First, thanks for the feedback @Trent! For your first question, the text was laid out in that manner to flow with the discussion. Regardless, I see how it can be confusing to read. I adjusted the material as per your feedback. I hope this makes it easier!
In regards to your second question, your suggested formula does not work because the sales charge is based on the POP, not the NAV. Let’s demonstrate this using the formula in the material and your formula. First, let’s assume:
NAV = $50
SC = 5%
The formula in the material:
POP = $50 / (100% - 5%)
POP = $50 / .95
POP = $52.63
Now, let’s use your formula:
POP = $50 + ($50 x 5%)
POP = $50 + $2.50
POP = $52.50
While the formulas provide similar numbers, they are not the same. If this was a FINRA test question, the test writers would most likely include both $52.63 and $52.50 as answer choices (FYI - $52.63 is the POP). It’s a weird formula because the sales charge is based on the number you’re trying to calculate (the POP).
If you rewrote your formula as this, it does work:
POP = NAV + (POP*SC)
The problem with doing it this way is you’ll need the POP to do the formula, which is what you’re trying to calculate. Bottom line, the formula below is the easiest and best formula for a POP question when provided the NAV and sales charge in percentage form:
POP = NAV / (100% - SC)
I hope this helps. Please respond with any further feedback or questions. Good luck with your studies!
Glad you liked it! I’m always on the lookout for good wordplay.
Ah, okay, I see what I was missing. That makes a lot more sense, thank you!