Hedge fund usually charges its investors an incentive fee of 20% of total returns. Use the following scenario analysis for hedge fund A and B to answer the following questions. Suppose Initial value of each fund is $100MIL and return information in each scenario is given below. For simplicity, assume that management fees other than incentive fees are zero for all funds.

	bear market	Normal market	bull market
Probability	0.4	0.4	0.20%
Fund A ($100M)	-35%	2%	30%
Fund B ($100M)	2%	4%	6%

1. What are the expected returns for hedge fund A and B?
2. What are the standard deviations of rate of return for hedge fund A and B?
3. What are the skewness of rate of return for hedge fund A and B?
4. What are the expected incentive fees for hedge fund A and B?
5. Based on your results in (i) and (ii) how might an incentive fee affect the hedge fund managers investment?