Practice Question

 Pelican Point Financial Group’s clientele consists of two types of investors. The first type of investor makes many transactions in a given year and has a net worth of over $2 million. These investors seek unlimited access to investment consultants and are willing to pay up to $35,000 annually for no-fee-based transactions, or alternatively, $40 per trade. The other type of investor also has a net worth of over $2 million but makes few transactions each year and therefore is willing to pay $95 per trade.

As the manager of Pelican Point Financial Group, you are unable to determine whether any given individual is a high- or low-volume transaction investor. To deal with this issue, you design a self-selection mechanism that permits you to identify each type of investor.  You offer two types of plans for customers with more than $2 million in assets: one plan has an annual maintenance fee but offers a large number of "free" transactions (call this the "Free Trade" Account); the other plan has no annual maintenance fee but charges for each transaction (call this the "Free Service" Account).

 Determine the specifics for each plan as listed below: 

 

Annual maintenance fee: $

Number of "free" transactions: 

Price for each transaction in excess of the number of "free" transactions: $ 

Price per transaction: $