(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%.

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:

=