What is the alpha investors earn in each fund?

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Bill and Allison are both mutual fund? managers, although Bill is more skilled than Allison. Both have $100 million in assets under management and charge a fee of 1%?/year. Bill is able to generate a 1% alpha before fees and Allison is able to generate a 2% alpha before fees.

Problem a. What is the alpha investors earn in each fund? (that is, the alpha after fees are taken? out)?

Problem b. Which fund will experience an inflow of? funds?

Problem c. Assume that both managers have exhausted the supply of good investment opportunities and so they will choose to invest any new funds received in the market portfolio and so those funds will earn a zero alpha. How much new capital will flow into each? fund?

Problem d. Once the new capital has stopped flowing? in, what is the alpha before and after fees of each? fund? Which fund will be? larger?

Problem e. Calculate each? manager's compensation once the capital has stopped flowing. Which manager has higher? compensation?

Reference no: EM132933196

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