A hedge fund has a beginning year value of $200 million, 2% management fee, and 20% incentive fee with the hurdle rate of 10%. The fees are paid at the end of the period and the incentive fee is calculated net of management fee. If the ending value of the fund is $300 million, then the total fee of the hedge fund is closest to: $18.8 million $20.8 million $14.8 million

The correct answer is B. Management fee = $300 million * 2% = $6 millionIncentive fee = ($300 million - $6 million - $200 million - ($200 million * 10%)) * 20% = $14.8 millionTotal fees = Management fee + Incentive fee = $6 million + $14.8 million = $20.8 million

CFA Level 1 Question Of The Week - Alternative Investments (3) - CFA Level 1

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This topic has 1 reply, 1 voice, and was last updated May-1911:27 am by Matt_AnalystPrep.

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- Matt_AnalystPrep
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  31 May 2019 at 11:27 am
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  The correct answer is B.
  
  Management fee = $300 million * 2% = $6 million
  
  Incentive fee = ($300 million – $6 million – $200 million – ($200 million * 10%)) * 20% = $14.8 million
  
  Total fees = Management fee + Incentive fee = $6 million + $14.8 million = $20.8 million
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