The Damon Investment Company manages a mutual fund composed mostly of speculative stocks. You recentlysaw an ad claiming that investments in the funds have been earning a rate of return of 21%. This rate seemedquite high so you called a friend who works for one of Damon’s competitors. The friend told you that the21% return figure was determined by dividing the two-year appreciation on investments in the fund by theaverage investment. In other words, $100 invested in the fund two years ago would have grown to $121 ($21 ÷$100 = 21%).Required:Discuss the ethics of the 21% return claim made by the Damon Investment Company.Sally Hamilton has performed well as the chief financial officer of the Maxtech Computer Company and hasearned a bonus. She has a choice among the following three bonus plans:1. A $50,000 cash bonus paid now.2. A $10,000 annual cash bonus to be paid each year over the next six years, with the first $10,000 paid now.3. A three-year $22,000 annual cash bonus with the first payment due three years from now.
The Damon Investment Company manages a mutual fund composed mostly of speculative stocks. You recently
saw an ad claiming that investments in the funds have been earning a
quite high so you called a friend who works for one of Damon’s competitors. The friend told you that the
21% return figure was determined by dividing the two-year appreciation on investments in the fund by the
average investment. In other words, $100 invested in the fund two years ago would have grown to $121 ($21 ÷
$100 = 21%).
Required:
Discuss the ethics of the 21% return claim made by the Damon Investment Company.
Sally Hamilton has performed well as the chief financial officer of the Maxtech Computer Company and has
earned a bonus. She has a choice among the following three bonus plans:
1. A $50,000 cash bonus paid now.
2. A $10,000 annual cash bonus to be paid each year over the next six years, with the first $10,000 paid now.
3. A three-year $22,000 annual cash bonus with the first payment due three years from now.
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