Answer: 7.2

**Explanation:** 1. **End-of-year AUM calculation:** - Beginning AUM: $500 million - Annual return: 22% - End-of-year AUM = $500 million * 1.22 = $610 million. 2. **Management fee calculation:** - Management fee = $610 million * 2% = $12.2 million. 3. **Hard hurdle rate application:** - The hard hurdle rate is 10% of the beginning AUM. - Hard hurdle = $500 million * 10% = $50 million. 4. **Incentive fee calculation (net of management fees):** - Net return = End-of-year AUM - Beginning AUM - Management fee - Hard hurdle. - Net return = $610 million - $500 million - $12.2 million - $50 million = $47.8 million. - Incentive fee = $47.8 million * 15% = $7.17 million ≈ $7.2 million. **Why not B or C?** - **Option B** incorrectly calculates the hurdle rate on the annual return before fees instead of the beginning AUM. - **Option C** assumes a soft hurdle rate, which is not applicable here.

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