CFA CFA Level 1 CFA Level 1 Question of the Week – Alternative Investments

CFA Level 1 Question of the Week – Alternative Investments

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  • Matt_AnalystPrep
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    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
    Matt_AnalystPrep
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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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