Hi guys, In the solution for this question, the first part mentioned "The guarantee charges are a percentage of the fund and so will be at their lowest whenever the guarantee bites." I'm not quite sure on why the guarantee charges will be at their lowest when the guarantee bites. Anyone please help? Thanks a lot!!
The guarantee bites when the fund value is low. Since the charge is a percentage of fund value, these means that the charge is also low. Note that the guarantee charge is not the same as the actual cost of the guarantee to the company.
