Explanation:

1. Management Fee Calculation:

   • Management fee = Ending AUM × 1% = $120 million × 1% = $1.2 million.

2. Performance Fee Calculation:

   • Annual return = (Ending AUM - Beginning AUM) / Beginning AUM = ($120 million - $100 million) / $100 million = 20%.
   • Hurdle rate = 3%.
   • Performance fee = (Annual return - Hurdle rate - Management fee) × 15% = (20% - 3% - 1.2%) × 15% = 15.8% × 15% = 2.37%.
   • Total fee = Management fee + Performance fee = 1.2% + 2.37% = 3.57%.

3. Net Return to Investor:

   • Net return = Annual return - Total fee = 20% - 3.57% = 16.43%, which rounds to 16.4%.

Option B is correct because it accurately reflects the net return after accounting for both the management and performance fees, including the hurdle rate.