CFA Practice Question

There are 139 practice questions for this study session.

CFA Practice Question

Assume that a hedge fund returns 15% in a year net of all fees. Its fee structure is 2 and 20. What are its gross returns?

A. 20%.
B. 20.4%.
C. 21.25%.
Correct Answer: C

The gross returns must add back the 2% management fee and adjust for the 20% share of gross returns that accrue to the hedge fund manager. Gross returns are therefore (15% + 2%) / (100% - 20%) = 21.25%.

Thus of the gross returns generated by the hedge fund manager, some 30% of the returns are retained as fees and 70% paid to the investor.

User Contributed Comments 5

User Comment
something (1+x) - 0.02(1+x) - 0.2x = 1.15, should give x = 21.79%, assuming management fee and incentive fees are independent.
Salim6 Assume X is the original value.
Gross return = Net return + Fees/X
= 0.15 + 0.02*1,15 + 0.2 * 0.15
= 0.15 + 0.053 = 20.3 %

What's wrong with it pls ?
nsbwong something, tht is exactly what i got as well...
chiodom1 Look at it like this
Gross Return = Net Return + Mgt Fee + Incentive Fee
X = 15 + 2 + .2X
.8X = 17
X= 21.25
3788wuz Salim6: fee is calculated based on gross return
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