Reddit

**Question 23** A hedge fund with a 2-plus-20% fee structure has equal probabilities of a 10% loss or a 30% gain in its first year. The expected return to an investor in the fund for the first year is closest to: | Financial Risk Manager Part 1 Quiz - LeetQuiz

Explanation:

With a 30% gain, the fund would earn fees of $2% + 0.20(30% - 2%) = 7.6% $. With a 10% loss, the fund would only earn its management fee of 2%. To the investor, the expected return is `$ 0.5`(-10% - 2%) + 0.5(30% - 7.6%) = 5.2%$.

(Book 3, Module 29.2, LO 29.e)

Comments (0)

No comments yet.

Financial Risk Manager Part 1

Get started today

Comments (0)

Get started today

Question 23

A hedge fund with a 2-plus-20% fee structure has equal probabilities of a 10% loss or a 30% gain in its first year. The expected return to an investor in the fund for the first year is closest to:

Comments (0)

Financial Risk Manager Part 1

Get started today

Comments (0)

Get started today

Question 23 A hedge fund with a 2-plus-20% fee structure has equal probabilities of a 10% loss or a 30% gain in its first year. The expected return to an investor in the fund for the first year is closest to:

Comments (0)

Question 23

A hedge fund with a 2-plus-20% fee structure has equal probabilities of a 10% loss or a 30% gain in its first year. The expected return to an investor in the fund for the first year is closest to: