Suppose that a hedge fund begins the year with $10,000,000,000 ($10 billion) in assets under management (AUM). The hedge fund then earns a 25% annual return and ends the year with $12,500,000.

The hedge funds manager is compensated with two and twenty. The managers management fee is 2% of end-of-year AUM. The managers incentive fee (carried interest) is 20% of all profits in excess of a 15% hurdle rate.

a.) How much in dollars is the fund manager paid from management fees?

b.) How much in dollars is the fund manager paid from the incentive fee (carried interest)?

c.) What is the fund managers total compensation in dollars for the year?