Question

which of the following advisory fees is prohibited? a charging a fee based on a percentage of an account's balance as the first of each month b charging a fee of 5% on the highest value of the account each month c a $5,000 fee for creating a financial plan d charging a client an hourly rate for managing the account

Answer 1

The problem involves calculating the future value of $5,000 investments for Alexx and Spenser over 30 years, with different annual interest rates due to a management fee. The future value for both investments is determined using the compound interest formula, and the difference is found by subtracting Spenser's future value from Alexx's.

Step-by-step explanation:

The question requires us to calculate the future value of investments for Alexx and Spenser after 30 years, with Alexx earning 5% interest and Spenser earning an effective 4.75% interest due to a 0.25% management fee. To find out how much more Alexx will have than Spenser after 30 years, we need to use the formula for compound interest:

Future Value = Principal × (1 + interest rate)^number of periods

For Alexx: Future Value = $5,000 × (1 + 0.05)^30

For Spenser: Future Value = $5,000 × (1 + 0.0475)^30

We can calculate these two values and then subtract Spenser's future value from Alexx's to determine the difference between their investments.