Answer-first summary for fast verification
Answer: 27%
## Explanation **Fee Structure Analysis:** **Given:** - Management fee: 2% of assets - Incentive fee: 20% of net return (after management fee) - Target return after fees: 20% **Let X = Required gross return before fees** **Step 1: Calculate return after management fee** - Return after management fee = X - 2% **Step 2: Calculate incentive fee** - Incentive fee = 20% × (X - 2%) **Step 3: Set up equation for target return** - Return after all fees = (X - 2%) - [20% × (X - 2%)] = 20% - (X - 2%) × (1 - 20%) = 20% - (X - 2%) × 0.8 = 20% **Step 4: Solve for X** - X - 2% = 20% ÷ 0.8 - X - 2% = 25% - X = 25% + 2% = 27% **Therefore, the hedge fund must earn 27% before fees to provide investors with a 20% return after fees.**
Author: LeetQuiz Editorial Team
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A hedge fund charges 2 plus 20%. Investors want a return after fees of 20%. How much does the hedge fund have to earn, before fees, to provide investors with this return? Assume that the incentive fee is paid on the net return after management fees have been subtracted.
A
27%
B
15%
C
21.6%
D
20%
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