Question
Portfolio managers are frequently paid a proportion of the funds undermanagement. Suppose you manage a $100 million equity portfolio offering adividend yield (DIV1 / P0)
Portfolio managers are frequently paid a proportion of the funds undermanagement. Suppose you manage a $100 million equity portfolio offering adividend yield (DIV1 / P0) of 5%. Dividends and portfolio value are expected togrow at a constant rate. Your annual fee for managing this portfolio is .5% ofportfolio value and is calculated at the end of each year. assuming that you willcontinue to manage the portfolio from now to eternity, what is the present valueof the management contract? How would the contract value chain if you investedin stocks with a 4% yield?
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