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 hard 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.

There are two types of hurdles: hard and soft. The hard hurdle is calculated only on returns above the hurdle rate. Soft hurdles are calculated on the whole return. Since it is hard hurdle rate, the incentive fee is based on the returns in excess of the hurdle rate: ($120 - $100 x 110%) x 20% = $2.

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