Q from CFA text book] Reading 2 page 125 Q 39 recommending to Brown: Ans said Brown will incur annual fee of 5750 and save about 6400 in brokerage commission/ so all togather he will have to pay 5750(for asset level ) and 2700 (comission cost given from text book) of 8450 ? Ans also goes on to say potential saving of 650 (which seems like the difference between 5750 and 6400 ) but does this make sence ? Even the above 5750, why are they not adding minimum annual fee of 1000 wheras they did in Q 38 for Vanderon ? gee , thanks,
anyone who did ethics with calculation. pls
flapechino Wrote: ------------------------------------------------------- > Q from CFA text book] > > Reading 2 page 125 > Q 39 > > recommending to Brown: > > Ans said Brown will incur annual fee of 5750 and > save about 6400 in brokerage commission/ > > so all togather he will have to pay 5750(for asset > level ) and 2700 (comission cost given from text > book) of 8450 ? No. This is a bundled fee so overall there is cost savings. > > Ans also goes on to say potential saving of 650 > (which seems like the difference between 5750 and > 6400 ) but does this make sence ? > > Even the above 5750, why are they not adding > minimum annual fee of 1000 wheras they did in Q 38 > for Vanderon ? > > gee , > > thanks,
mvw, thanks as always. but I still do not undestand. The ans say s Brown incur annual fee of 5750 and save 6400. so I think he will save about 6400. (as it says so) but the asn goes on to say " the potential saving of approx 650 is reasonable." I mean that contradicts. Will he save about 6400 or 650 ? The numbers are totally different , big sigh
I will look it up tonight.
I didn’t do the question or look in the book, but it looks like he is saving $6,400 but paying $5,750…so -6,400 + 5,750 = -650
mvw, thanks Spnge Bob: thanks but … Brown used to pay 9100 and he will get 70% discount with the new plan. So 9100 X 0.7 = 6370 which is close to 6400. So he will be saving 6400 I think. not 650. YOu used to pay 9100 and now only 2700 so your saving is 6400, 9100 - 2700.
The way I read this problem is that he pays the flat fee based on the assets under management as well as 30% of his transaction fees . So he pays 5750 + (9100 * 0.3 ) = 5750 + 8480 Net savings is 9100 - 8480 = 620 (which is approximately the 650 figure they talk about.
flapechino Wrote: ------------------------------------------------------- > Q from CFA text book] > > Reading 2 page 125 > Q 39 > > recommending to Brown: > > Ans said Brown will incur annual fee of 5750 and > save about 6400 in brokerage commission/ > > so all togather he will have to pay 5750(for asset > level ) and 2700 (comission cost given from text > book) of 8450 ? This particular fee is based on assets under management, but they still have to pay commission on stock and bond trades (not mutual funds). The commission they do pay are reduced by 70% though. So last year his total brokerage commissions were $9100 so a 70% discount on that is 9100*.7=$6370. This is the amount he will SAVE in brokerage commission on stocks (the vignette mentions he only trades equities). Alternatively you could look at this as 9100 *.3 =2730 is the amount he will have to pay in commissions with the PlusAccount. To get that savings though he will have to sign up for the PlusAccount which has it’s own fee. His portfolio is valued at 300,000. Based on the fee schedule he will pay 2% on the first 250K and 1.5 and the next 50K. So the total AUM fee is 250,000*.02=5000 + 50,000*.015=750 TOTAL = 5750 Therefore the total fee in the PlusAccount is AUM fee + Commission = 5750 + 2730 = 8480 WITHOUT the PlusAccount last year he paid 9100. So total savings are 9100 - 8480 = 620. The CFAI answer doesn’t go this far into detail, but I did to help you see what they were doing. They basically say that he has to pay a 5750 AUM fee to save ~6400. They are saying the same thing as me above. > > Ans also goes on to say potential saving of 650 > (which seems like the difference between 5750 and > 6400 ) but does this make sence ? > > Even the above 5750, why are they not adding > minimum annual fee of 1000 wheras they did in Q 38 > for Vanderon ? This is a MINIMUM annual fee. Kind of like a floor. So if you total costs for the year are only 750 you still have to pay 1000, but if you total costs are 1050 that is what you pay (not 1050 + 1000). Vanderon account is smaller and this forces him to pay the minimum fee. Hope this helps.
wow ! ! ! sv102 and mwvt9 sure you opened my eyes. many many thnaks, I hope these q would not appear on exam. I just do not know if I am doing ethics or calculation.