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John Galt is a mutual fund manager at Atlas Asset Management.He can generate an alpha of 2% a year up to $500 million of invested capital.After that amount,his skills are spread too thin,so he cannot add value and his alpha is zero for all investments over $500 million.Atlas Asset Management charges a fee of 0.80% on the total amount of money under management.Assume that there are always investors looking for positive alpha investments and no investor would invest in a fund with a negative alpha.Assume that the fund is in equilibrium,meaning that no investor either takes out money or wishes to invest new money into the fund.
-The amount of fee income that Galt's fund will generate is closest to:

Question

Quizplus · Accepted Answer

To calculate the fee income generated by Galt's fund, we need to determine the total amount of money under management. 
Since Galt can generate an alpha of 2% up to $500 million, we know that the amount of money under management will be $500 million. 
Therefore, the fee income generated by the fund will be 0.80% of $500 million, which is equal to $4 million. 
So, the closest answer choice is C, which is $10 million (2.5 times $4 million).

Use the Following Information to Answer the Question(s)below