Under deal-by-deal method, I m getting 3 million carried interest amount –
Deal 1 – (25-20)*0.2 = 1 million
Deal 2 – (35-45)*0.2 = -2 (max. -1 million, therefore cumulative carried interest = 0)
Deal 3 – (65-50)*0.2 = 3 million
So by end of year 3, I m getting 3 million by doing on deal by deal basis but in solution it is done at end of third year net. What to follow?
Follow the institute’s solution.