Answer: 3.84.

## 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)**

Author: LeetQuiz .