Question

An investment adviser has developed 11 different investment strategies that use a combination of fundamental and technical factors to make investment decisions among both equity and fixed income investments. Based on the customer account profile, the adviser then uses one of 7 different algorithms that allocates the client's funds using these 11 investment strategies. The adviser has implemented a fee structure that charges a 1.10% annual management fee on assets invested, plus the adviser charges a fee of .50% of assets annually for use of the algorithms. The adviser provides each client with a flyer covering the adviser's 11 different investment strategies with disclosure of the 1.10% annual management fee. Under the NASAA Rule on Unethical Business Practices of Investment Advisers, this is: A. a violation of the prohibition on charging unreasonable advisory fees, because the client is being double charged for these services B. a violation of the prohibition on charging a client an advisory fee for rendering advice when a commission for executing securities transactions pursuant to such advice will be received by the adviser C. not a violation of the prohibition on charging unreasonable advisory fees, because the management fee was disclosed to the client D. not a violation of the NASAA Rule on Unethical Business Practices of Investment Advisers because the advisory fees are based on assets under management

Answer 1

The future value of investments for Alexx and Spenser are calculated using the compound interest formula, accounting for their respective APRs. The difference in their investments after 30 years is found by subtracting Spenser's final amount from Alexx's.

Step-by-step explanation:

The question involves calculating the future value of investments for both Alexx and Spenser, considering the different annual percentage rates (APRs) they each receive. Alexx is earning an APR of 5% by investing directly, while Spenser, through a retirement fund, is earning an APR of 4.75% because of the 0.25% administrative fee on managed assets.

To find out how much more Alexx will have than Spenser after 30 years, we need to use the formula for compound interest: FV = P(1 + r/n)^(nt), where FV is the future value, P is the principal amount ($5,000), r is the annual interest rate (expressed as a decimal), n is the number of times that interest is compounded per year, and t is the number of years.

Assuming the interest is compounded annually (n = 1), Alexx's investment would grow as follows:

FV = $5,000(1 + 0.05/1)^(1*30) = $5,000(1.05)^30.

Spenser's investment would grow similarly, but at a 4.75% interest rate:

FV = $5,000(1 + 0.0475/1)^(1*30) = $5,000(1.0475)^30.

After calculating these values, we subtract Spenser's final amount from Alexx's to find the difference in their investments after 30 years.