(SOLVED) At the first year an investor decides to invest $1.5 million in a hedge fund with an incentive fee of 15% and a hard hurdle rate of 4%.

Discipline: Finance

Type of Paper: Question-Answer

Academic Level: Undergrad. (yrs 1-2)

Paper Format: APA

Pages: 1 Words: 49

Question

At the first year an investor decides to invest $1.5 million in a hedge fund with an incentive fee of 15% and a hard hurdle rate of 4%. At the end of the year the fund has a return of 23.3%.

A 2% management fee is charged on the AUM at the end of the year.


Calculate

  1. Amount of management fee
  2. Amount of incentive fee
  3. The investor’s effective rate of return at the year end.


Expert Solution Preview


Management fee:

= (invested value*(1+return rate))  * management fee rate

=(1,500,000*(1+23.3%))*2%

= 36,990


Incentive fee:

=