CFA Practice Question

There are 139 practice questions for this study session.

CFA Practice Question

Suppose an investor enters a hedge fund with a $1,000,000 at the beginning of year 1, and in that year the fund is down 20%, that is, the value of the investment drops to $800,000 gross of fees. The fund has a fee structure of 2 and 20, and all fees are based on the end-of-period value. What are the fees charged by the fund?

A. $0 due to the loss of fund value.
B. $16,000.
C. $20,000.
Correct Answer: B

The management fee is 2% of the end-of-period value ($800,000).

User Contributed Comments 5

User Comment
vatsal92 Management fee will always be present.
ldfrench Notice that mgmt fee is end-of-period value, not beginning.
kay136 Though end of period management fees are more common, there are funds with beginning of period management fees as well. If it's not stated I would assume end do period but do pay attention to wording in case they do say it.
ankurwa10 I think there are several approaches to management fee maths. I have also seen a+b/2 approach. which would give 18000 in this case. but given the choices, i think it takes end-of period value.
Inaganti6 IDFrench thanks
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