a. What will total fees be for Fund (A)? For Fund (B)? b. Would one of the fee structures cause the manager to want to hold the properties fonger before selling than the other fee structure? if so, which one?
a. What will total fees be for Fund (A)? For Fund (B)? b. Would one of the fee structures cause the manager to want to hold the properties fonger before selling than the other fee structure? if so, which one?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:S
Problem 23-1
An institutional investor is comparing management fees for two competing real estate investment funds. Both funds expect to begin
operations and are accepting capital commitments. When the funds begin acquiring properties, capital calls will be made for capital
contributions during the investment period. Fund A will charge a fee of 45 BP on capital committed and 60 BP on capital invested after
the investment period ends. Fund B will charge a fee of 50 BP on capital committed and 55 BP on capital invested after the investment
period ends. Both funds expect to have $508,500,000 in capital commitments when the fund commences operations and both project
a five-year cycle for startup and acquisitions. Capital flows are expected as follows:
Fund A
Year 1
Year 2
Year 3
Year 4
Year 5
Fund B
Year 11
Year 2
Year 3
Year 4
Year 5
Contributed
Capital
$ 203,400,000
305,100,000
Contributed
Capital
$ 305,100,000
203,400,000
Fund A
Fund B
Capital Returned
50
0
0
101,700,000
50,850,000
Capital Returned
50
0
0
50,850,000
101,700,000
Invested Capital
$ 203,400,000
508,500,000
508,500,000
406,800,000
355,950,000
Invested Capital
$ 305,100,000
508,500,000
508,500,000
457,650,000
355,950,000
Required:
a. What will total fees be for Fund (A)? For Fund (B)?
b. Would one of the fee structures cause the manager to want to hold the properties longer before selling than the other fee structure?
if so, which one?
Complete this question by entering your answers in the tabs below.
Required A Required B
What will total fees be for Fund (A)? For Fund (B)?
Total Fees
Required B >
Expert Solution
Step 1: Introduction:
The total amount of capital that investors have contributed to a company or investment fund is referred to as contributed capital. When referring to an investment fund, it also refers to the capital that investors have pledged to the fund for use in investments. Investors give funds with the assumption that they will be utilized to buy assets, make investments, and make money.
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