Excess of the number of free transactions

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Reference no: EM131303717

Pelican Point Financial Group’s 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 $1.5 million. These investors seek unlimited access to investment consultants and are willing to pay up to $20,000 annually for no-fee-based transactions, or alternatively, $40 per trade. The other type of investor also has a net worth of over $1.5 million but makes few transactions each year and therefore is willing to pay $120 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 $1.5 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 $

Reference no: EM131303717

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