Davita Spencer is a manager at Half Dome Asset Management. She can generate an alpha of 2.22% per year on up to $126 million of assets. After that her skills are spread too thin, so she cannot add value and her alpha is zero on any additional money under management. Half Dome charges a fee of 0.94% per year on the total amount of money under management (at the beginning of each year). Assume that there are always investors looking for positive alpha and no investor would invest in a fund with a negative alpha. In equilibrium, that is, when no investor either takes out money or wishes to invest new money, a. What alpha do investors in Davita's fund expect to receive? b. How much money will Davita have under management? c. How much money will Half Dome generate in fee income?
Davita Spencer is a manager at Half Dome Asset Management. She can generate an alpha of 2.22% per year on up to $126 million of assets. After that her skills are spread too thin, so she cannot add value and her alpha is zero on any additional money under management. Half Dome charges a fee of 0.94% per year on the total amount of money under management (at the beginning of each year). Assume that there are always investors looking for positive alpha and no investor would invest in a fund with a negative alpha. In equilibrium, that is, when no investor either takes out money or wishes to invest new money, a. What alpha do investors in Davita's fund expect to receive? b. How much money will Davita have under management? c. How much money will Half Dome generate in fee income?
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
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Transcribed Image Text:Davita Spencer is a manager at Half Dome Asset Management. She can generate an alpha of 2.22% per year on up to $126 million of assets. After that her skills are spread too thin, so she cannot add value and
her alpha is zero on any additional money under management. Half Dome charges a fee of 0.94% per year on the total amount of money under management (at the beginning of each year). Assume that there are
always investors looking for positive alpha and no investor would invest in a fund with a negative alpha. In equilibrium, that is, when no investor either takes out money or wishes to invest new money,
a. What alpha do investors in Davita's fund expect to receive?
b. How much money will Davita have under management?
c. How much money will Half Dome generate in fee income?
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