Question
Pelican Point Financial Groups clientele consists of two types of investors. The first type of investor makes many transactions in a given year and has
Pelican Point Financial Groups clientele consists of two types of investors. The first type of investor makes many transactions in a given year and has a net worth of over $2 million. These investors seek unlimited access to investment consultants and are willing to pay up to $15,000 annually for no-fee-based transactions, or alternatively, $30 per trade. The other type of investor also has a net worth of over $2 million but makes few transactions each year and therefore is willing to pay $110 per trade.
As the manager of Pelican Point Financial Group, you are unable to determine whether any given individual is a high- or low-volume transaction investor. To deal with this issue, you design a self-selection mechanism that permits you to identify each type of investor. You offer two types of plans for customers with more than $2 million in assets: one plan has an annual maintenance fee but offers a large number of "free" transactions (call this the "Free Trade" Account); the other plan has no annual maintenance fee but charges for each transaction (call this the "Free Service" Account). Determine the specifics for each plan as listed below:
Free Trade Account
Annual Maintenance fee: $__
Number of 'free' transactions: ___
Price for each transaction in excess of the number of 'free' transactions: $___
Free Service Account: Price per transaction: $
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