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 the total fees charged by the fund manager?
A. 5.25%
B. 5.75%
C. 6.25%
Explanation: The gross returns must adjust for the 20% share of gross returns that accrue to the hedge fund manager, and then add back the 2% management fee. Gross returns are therefore 15% / (100% - 20%) + 2% = 20.75%. Total fees to the hedge fund manager are therefore 20.75% - 15.00% = 5.75%.

User Contributed Comments 8

User Comment
ldfrench Well isn't this question just a kick in the nuts.
leon121 good question
ebola PF is paid post MF. Net MF is 18.75%. Net PF is 15%.
qq6164515 why gross rate not equal to (15%+2%)/(100%-20%)?
Emanco Plug in the numbers:
5,75%+ 15%= 20.75%
20.75% -2%= 18.75%
18.75% * 0.2= 3.75%
3.75% + 2% = 5.75%
AggelosAnd LOS 60 d.e.f/ Quiz question 24 exactly same assumptions.

Gross returns = 21.25%

Gross returns here = 20.75%

How and why?
Akiva AggelosAnd and qq6164515, +1
I cannot understand, why here is
15% / (100% - 20%) + 2%
Why not
(15% + 2%) / (100% - 20%)
(the same is in the question 24 LOS 60 d.e.f., as AggelosAnd mentioned
sevywonder so the 15% already includes the portion taken out for performance- to add it back in, you need to multiply by 1/.8=1.25.
ergo
.15*1.25= .1875
and the 2% is taken out regardless, so .02+.1875= .2075
.2075 minus the .15 return equals .0575 taken out in fees
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