Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Portfolio managers are frequently paid a proportion of the funds under management. Suppose you manage a $114 million equity portfolio offering a dividend yield (DIV

Portfolio managers are frequently paid a proportion of the funds under management. Suppose you manage a $114 million equity portfolio offering a dividend yield (DIV1/ P0) of 6.4%. Dividends and portfolio value are expected to grow at a constant rate. Your annual fee for managing this portfolio is .64% of portfolio value and is calculated at the end of each year.

a. Assuming that you will continue to manage the portfolio from now to eternity, what is the present value of the management contract? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

Present value $ milllion

b. What would the contract value be if you invested in stocks with a 5.4% yield? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

Contract value $ milllion

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions