CFA Practice Question

There are 139 practice questions for this study session.

CFA Practice Question

The beginning NAV of a hedge fund is $100. The ending NAV is $120. The soft hurdle rate is 10%. The fund has 2 and 20 fee structure and all fees are based on the end-of-period value. What are the fees charged by the fund?
A. $2.4
B. $4.4
C. $6.4
Explanation: The management fee is 2% of $120 = $2.4. Since it is soft hurdle rate, the incentive fee is based on the entire return ($120 - $100) x 20% = $4.

User Contributed Comments 4

User Comment
chcarnes Can somone explain the difference between calculating soft and hard hurdle rate?
LCMilkbone Yea @chcarnes I would like that too. I cannot find hard and soft hurdle rates either.
ascruggs92 Just based on the question, I'd say that a soft hurdle means that performance fees are earned on the entire return but only if it crosses the hurdle (example - no performance fee would be charged on a 9% return but if the fund returned 20% a performance would be charge on the entire 20%).

Conversely, a hard hurdle means the performance fee is charge only on returns above the hurdle. (Example: 9% return would get them no performance fee, but if they return 20%, a performance fee is charged on the return in excess of the hurdle, which in this case is 10%). The answer would be B. if it were a hard hurdle
saraguo21 thats correct ascruggs92
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