Question

What is the largest percentage fee that a client who currently is lending (y < 1) will be willing to pay to invest in your fund? What about a client who is borrowing (y > 1)?

Answer 1

Answer:

y < 1 = 0.61%

y > 1 = 0.28%

Explanation:

risk premium is 11%

Market premium is 15%

risk free rate is 5%

rate of borrowing is 9%

r - index is 13%

market index is 25%

When the client borrows the fund when y <  then the percentage fee will be:

[15 - 11 ] * 9% * [ 25 / 13 ]

= 0.61%