Step-by-Step Calculation

1. Calculate end-of-year assets before fees:

• Beginning assets: $100,000,000
• Gross return: 15%
• Gross return amount: $100,000,000 × 15% = $15,000,000
• Assets before fees: $100,000,000 + $15,000,000 = $115,000,000

2. Calculate management fee:

• Management fee rate: 2% of end-of-year assets
• Management fee: $115,000,000 × 2% = $2,300,000

3. Calculate incentive fee:

• Soft hurdle rate concept: With a soft hurdle rate, the incentive fee is calculated on the entire return above 0% (not just above the hurdle rate), but only if the return exceeds the hurdle rate.
• Gross return (15%) > Soft hurdle rate (5%), so incentive fee applies.
• Incentive fee base = Return net of management fee
• Return net of management fee = $15,000,000 - $2,300,000 = $12,700,000
• Incentive fee = $12,700,000 × 20% = $2,540,000

4. Calculate total fees:

• Total fees = Management fee + Incentive fee
• Total fees = $2,300,000 + $2,540,000 = $4,840,000
• In $millions: `$4.84` million

5. Verify with option C:

• Option C is 4.84, which matches our calculation.

Key points to remember:

• Management fee is based on end-of-year assets ($115 million)
• Incentive fee is calculated net of management fee
• Soft hurdle rate means incentive fee applies only if return exceeds hurdle rate, but is calculated on entire return above 0%
• Hard hurdle rate would calculate incentive fee only on return above the hurdle rate

Answer: C (4.84)