Alternative Investments - 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 : 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.
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