Confused about the use of the Breakeven Active Return and the Standard Fee here. I understand how to calculate the Net AR under all of the possible returns except when the Gross AR is 1.25%.
When the Gross AR is 1.25%, the answer key uses the Standard Fee of 0.35 only, and disregards any Sharing fee. But how come it goes back to using the Base Fee + Sharing at 1.75% Gross AR?
Answer Key:
Breakeven active return: billed fee (should be 0.35) = standard fee (0.35)
BF = [(Active_return - base_fee) * sharing] + base fee
0.35 = [Active_return - 0.20) * 0.25] + 0.20
0.35 = 0.25 Active_return - 0.05 + 0.20
0.25 Active_return = 0.35 + 0.05 - 0.20
Active_return = 0.20/0.25 = 0.80 (Breakeven active return)
Proof:
[(0.8 - 0.2) * .25 ] + 0.20 = 0.35 billed fee (which is same as standard fee)
Agreed.
