What fee is $3.6 million on $1.2 billion?

Question

A fund collected \3.6 million in fees last year on \1.2 billion of assets. Solve in your head. What management fee is that, in basis points? Aim: under 10 seconds.

Accepted Answer

Run the usual move in reverse. First get the dollar value of one basis point of the assets: 1 	ext{ bp of } \1.2	ext{B} = 1.2 	imes 10^9 	imes 10^{-4} = \120{,}000. Then divide the actual fee by that unit to count how many basis points it represents: \frac{\3{,}600{,}000}{\120{,}000} = 30 	ext{ bp}. A quick sanity check the other way: 30 bp is 0.30\%, and 0.30\% of \1.2B is 0.003 	imes 1.2	ext{B} = \3.6M. Matches. As a percentage, 30 bp = 0.30\%, a typical actively managed fee. Takeaway. To back out a rate, divide the dollar fee by "1 bp of the notional." The forward and reverse direct…

What fee is $3.6 million on $1.2 billion?

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