Three Investment Alternatives Alternative A Load or commission None Alternative B 5% front-end Alternative C 3% to purchase; 3% to sell Expected annual total returns 10.73% 10.62% 11.01% Risk Moderate Moderate Moderate Management fees 0.4% 1.2% Questions: 1. Which investment alternative: a. Provides the highest returns to the client? b. Provides the highest profits to Stuart & Co.? 2. If your answer to (b) is not the same as your answer to (a) and Philip recommends the highest profit choice, is he acting unethically? Why or why not? 3. Which alternative should the top management of Stuart & Co. want Philip to recommend to his client? Is the company's control system designed to ensure that choice? What can the company do implement better controls? 4. From examples stated in the case, what may head-office measure in order to access performance? 5. Name another industry/situation where this may occur. 3