Answer: 13.24%

## Calculation Explanation **Step 1: Calculate the gross return** - Initial investment: $10,000,000 - Year-end value: $11,800,000 - Gross return = ($11,800,000 - $10,000,000) / $10,000,000 = 18% **Step 2: Calculate management fee** - Management fee = 2% of year-end value - Management fee = 2% × $11,800,000 = $236,000 **Step 3: Calculate value after management fee** - Value after management fee = $11,800,000 - $236,000 = $11,564,000 **Step 4: Calculate incentive fee** - Hard hurdle rate = 6% - First, calculate the hurdle amount: $10,000,000 × (1 + 6%) = $10,600,000 - Incentive fee is only charged on the amount above the hurdle, net of management fee - Amount above hurdle = $11,564,000 - $10,600,000 = $964,000 - Incentive fee = 20% × $964,000 = $192,800 **Step 5: Calculate final value after all fees** - Final value = $11,564,000 - $192,800 = $11,371,200 **Step 6: Calculate net-of-fees return** - Net return = ($11,371,200 - $10,000,000) / $10,000,000 = 13.712% - Rounded to two decimal places: 13.71% **Step 7: Verify with the options** The calculated net return is 13.71%, which corresponds to option B. **Key Points:** 1. Management fee is based on year-end value (2% of $11.8 million) 2. Incentive fee is calculated net of management fee 3. Hard hurdle rate means incentive fee is only charged on returns above 6% 4. The calculation follows the sequence: gross return → management fee → incentive fee → net return **Therefore, the correct answer is B: 13.71%**

Author: LeetQuiz .