What is the present value of the management contract

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Reference no: EM133377009

Question: Compensating Portfolio Managers Portfolio managers are frequently paid a proportion of the funds under management. Suppose you manage a $350 million portfolio of automobile common stocks offering a dividend yield (DIVl/Po) of 4.0%. Dividends and portfolio value are expected to grow at a constant rate. The annual fee for managing the portfolio is 2% of the portfolio value and paid at the end of each year (for the first time one year from today.) Hence, the first payment, one year from today. will be $350 million times the annual fee. Suppose you will manage this portfolio from now to eternity, what is the present value of the management contract?

Reference no: EM133377009

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