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Problem 17-04

CMD Asset Management has the following fee structure for clients in its equity fund:

1.00	%	of first $6 million invested
0.75	%	of next $6 million invested
0.60	%	of next $12 million invested
0.40	%	above $24 million

1. Calculate the annual dollar fees paid by Client 1, who has $33 million under management, and Client 2, who has $91 million under management. Do not round intermediate calculations. Round your answers to the nearest dollar.

   Client 1: $

   Client 2: $

2. Calculate the fees paid by both clients as a percentage of their assets under management. Do not round intermediate calculations. Round your answers to two decimal places.

   Client 1: %

   Client 2: %

3. What is the economic rationale for a fee schedule that declines (in percentage terms) with increases in assets under management?

   Costs of management -Select-increasedo not increaseItem 5 at the same rate as the managed assets because -Select-positivenegativeItem 6 economies of scale exist in managing assets.