Could someone please explain to me whether a return of (147.75-2.25-7.2)/120 would be correct for this question or not?
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No as you have not calculated the incentive fee
Management fee = 150*0.015 = 2.25
Incentive fee = [30-7.2(hurdle rate)-2.25(management fee)]*0.15 = 3.0825
Total Fees = 5.3325
Total return to investor = [(150-5.3325-120)/120] * 100 = 20.56%
Hence Option A is the answer
Hope this helps!
Thank you so much for clearing the doubt
The answer to the above question should be OPtion A
Beginning value to the hedge fund = 120
Ending value = 120 * 1.25 = 150
management fees = 150 * 0.015 = 2.25
hard hurdle = 120 * 0.06 = 7.2
Incentive fees = 150 -120 – 7.2 – 2.25 = 20.55 * 0.15 = 3.0825
Return = 1150 – 120 – 2.25 – 3.0825 = 24.6675 / 120 * 100 = 20.56 %
Hope This Helps
Incentive fees =
Thank you so much for clearing the doubt