Can someone please help me with this question?
Share
Please briefly explain why you feel this question should be reported.
Please briefly explain why you feel this answer should be reported.
Please briefly explain why you feel this user should be reported.
The correct answer is C
Let’s first calculate the management fee as this is the hedge fund it will on the total AUM= 0.02 *642 = 12.84
Then the incentive fee will be calculated but we need to keep in mind that they had stated in hard hurdle rate of 4% we hurdle rate will be calculated on the watermark. so,
{642- (610+1.04)} *.2 = 1.52
Adding the fee = 12.84+1.52 =14.36
(642-14.36)/ beginning value =
627.6/ 583.1 = 1.07638 -1 = 0.764= 7.64%
Management fee = year end NAV * 2%
= 642 * 2%
= 12.84
Incentive fee = {year end NAV – high watermark * (1 + hurdle rate)} * 20%
= {642 – 610 * 1.04} * 20%
= {642 – 634.4} * 20%
= {7.6} *20%
= 1.52
Net fee = Management fee + Incentive fee
= 12.84 + 1.52
= 14.36
Year end NAV net of all fee = Year end NAV – Net fee
= 642 – 14.36
= 627.64
Net return = {(year end NAV net of all fee/beginning NAV) – 1} * 100
= {(627.64/583.1) – 1} * 100
= {1.0764 – 1} * 100
= 0.0764 * 100
= 7.64% Answer
Can you explain the incentive fee formula?
Hurdle rate is always calculated above High watermark since the sum is silent hurdle rate is supposed hard.
Incentive fee will be calculated on the return in excess of high watermark plus hurdle rate.
Hope you Understood!
There are two things I need to ask here.
1) High water market ke upar hurdle rate lagaye (whenever both hurdle rate as well as highwater mark is give right?)
2) If question doesn’t specify which hurdle rate toh humlog hard hurdle consider karenge?
Thanks
Yes, right.
You can also check the detailed solution I’m attaching in the Reply below.