Your client ponders whether to switch the 70% that is invested in your fund to the passive portfolio. a. Explain to your client the disadvantage of the switch.
b. Show him the maximum fee you could charge (as a percentage of the investment in your fund, deducted at the end of the year) that would leave him at least as well off investing in your fund as in the passive one. (Hint: The fee will lower the slope of his CAL by reducing the expected return net of the fee.)

Answer rating: 100% (QA)

Step 1 a The capital market line CML is the capital allocation line provided by 1month Tbills and a ... View the full answer