Explanation

Option B (14.08%) is correct because it accurately accounts for both the management fee and the incentive fee:

1. Management Fee Calculation:

   • End-of-year AUM before fees = $50 million * (1 + 20%) = $60 million.
   • Management fee = $60 million * 2% = $1.2 million.

2. Incentive Fee Calculation:

   • Net return after management fee = ($60 million - $50 million - $1.2 million) = $8.8 million.
   • Incentive fee = $8.8 million * 20% = $1.76 million.

3. Total Fees:

   • Total fees = $1.2 million (management) + $1.76 million (incentive) = $2.96 million.

4. Investor's Net Return:

   • Net return = ($60 million - $50 million - $2.96 million) / $50 million = 14.08%.

Option A (13.60%) is incorrect because it fails to adjust the incentive fee for the management fee, leading to an overestimation of total fees.

Option C (14.40%) is incorrect because it calculates the management fee based on beginning-of-year AUM instead of end-of-year AUM, resulting in an incorrect fee structure.