CMD Asset Management has the following fee structure for clients in its equity fund:
|
1.00% of first $5 million invested
|
|
0.75% of next $5 million invested
|
|
0.60% of next $10 million invested
|
|
0.40% above $20 million
|
a. Calculate the annual dollar fees paid by Client 1, which has $27 million under management, and Client 2, which has $97 million under management.
b. Calculate the fees paid by both clients as a percentage of their assets under management.
c. What is the economic rationale for a fee schedule that declines (in percentage terms) with increases in assets under management?