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Here are data on three hedge funds. Each fund charges its investors an incentive fee of 1 0 % of total returns. Suppose initially that
Here are data on three hedge funds. Each fund charges its investors an incentive fee of of total returns. Suppose initially that a fund of funds FF manager buys equal amounts of each of these funds, and also charges its investors a incentive fee. For simplicity, assume also that management fees other than incentive fees are zero for all funds.
Hedge
Fund Hedge
Fund Hedge
Fund
Start of year value millions $ $ $
Gross portfolio rate of return
a Compute the rate of return after incentive fees to an investor in the fund of funds. Do not round your intermediate calculations. Round your answer to decimal places.
b Suppose that instead of buying shares in each of the three hedge funds, a standalone SA hedge fund purchases the same portfolio as the three underlying funds. The total value and composition of the SA fund is therefore identical to the one that would result from aggregating the three hedge funds. Consider an investor in the SA fund. After paying incentive fees, what would be the value of the investors portfolio at the end of the year? Do not round your intermediate calculations. Round your answer to decimal places.
d Now suppose that the return on the portfolio held by hedge fund were rather than Recalculate your answers to parts a and bDo not round your intermediate calculations. Negative amount should be indicated by a minus sign. Leave no cells blank be certain to enter wherever required. Round your answers to decimal places.
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