Alternative Investments - Alternative Investments Section 1

>>>>>>>>Alternative Investments Section 1

• Option : A
• Explanation : Management fee = 250 x 0.04 =10, because the fund declined in value, there is no incentive fee.

• Option : B
• Explanation : Management fee = 100 * 1.25 * 0.04 = 5 million,
Incentive fee = (100 * 1.25 - 100) * 0.2 = 5
Return = (100 * 1.25 - 100 - 10) / 100 = 15%

• Option : C
• Explanation : The management fee for hedge funds is based on assets under management.

• Option : B
• Explanation : Step 1: Calculate the management fee.
Value of investment at the end of first year (after return)
= 100 million * 1.30 = 130 million,
Management fee = 130 million * 0.02 = 2.6 million
Step 2: Calculate the incentive fee
Given a 10% hurdle rate, the amount to consider for the incentive fee
= 30 – 10 = 20 million
Incentive fee = 20 million * 0.20 = \$4.0 million
Total fees earned = 2.6 million + 4.0 million = 6.6 million
Investor’s net return = (130.00 - 6.60) / 100 = (123.40 / 100) - 1 = 23.4%

• Option : C
• Explanation : Invested capital = 200,000,000
Value of fund after a year = 200,000,000 * 1.35 = 270,000,000
Management fee = 270,000,000 * 0.02 = 5,400,000
Incentive fees = (270,000,000 – 200,000,000 – 5,400,000) * 0.2
= 12,920,000
Total fee = 5,400,000 + 12,920,000 = 18,320,000.