Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Fee and Return Calculations Kara Tas Capital is a hedge fund with $500 million of initial investment capital. It charges a 2% management fee based

image text in transcribed
image text in transcribed
image text in transcribed
Fee and Return Calculations Kara Tas Capital is a hedge fund with $500 million of initial investment capital. It charges a 2% management fee based on year-end AUM and a 20% incentive fee. In its first year, Kara Tas Capital has a 25% return. Assume management fees are calculated using end-of-period valuation. Required: 1. If the incentive and management fees are calculated independently (2 points): Calculate the fees earned by Kara Tas? What is an investor's effective return given this fee structure? . 2 Assuming that the incentive fee is calculated on the basis of return net of the management fee (2 points): . What are the fees earned by Kara Tas ? What is an investor's net return given this fee structure? 3 If the fee structure specifies a hurdle rate of 4% and the incentive fee is based on returns in excess of the hurdle rate (2 points): . What are the fees earned by Kara Tas assuming the performance fee is calculated net of the management fee? What is an investor's net return given this fee structure? 4 In the second year, the fund value declines to $530 million. The fee structure is as specified for Question 1 but also includes the use of a highwater mark (computed net of fees). What are the fees earned by Kara Tas in the second year? What is an investor's net return for the second year given this fee structure? (3 points) 5 In the third year, the fund value increases to $640 million. The fee structure is as specified in Questions 1 and 4.(3 points): What are the fees earned by Kara Tas in the third year? What is an investor's net return for the third year given this fee structure? . 6 based on the fee structure specified in Questions 1, 4, and 5 (4 points): . What are the arithmetic and geometric mean annual returns for the three- 6 based on the fee structure specified in Questions 1, 4, and 5 (4 points): . What are the arithmetic and geometric mean annual returns for the three- year period ? What is the capital gain to the investor for the three-year period? What are the total fees paid to KaraTas for the three-year period

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Personal Finance

Authors: Jeff Madura

3rd Edition

0321357973, 978-0321357977

More Books

Students also viewed these Finance questions

Question

Design test cases for testing a search engine such as Google.

Answered: 1 week ago

Question

=+analysis, and social media communication audit

Answered: 1 week ago