
Explanation:
Year end fund value = $652 million
Management fee = 2% * 652 = $13.04 million
Incentive fee = (652 - 550 - 13.04) * 20% = $17.79 million
Investor's net return = (652 - 550 - 13.04 - 17.79)/550 = 71.17/550 = 12.94%
Q.3502 Mega Star Investment is a hedge fund with $550 million initial capital and a '2 and 20' fee structure. The 2% management fee is based on year-end assets under management and the 20% incentive fee is not independent of the management fee. The value of the fund at the end of year one is $652 million. What is the investor's net return?
A
0.1247
B
0.1294
C
0.1531
D
0.1779
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