Which of these hedge fund strategies would we expect to have the highest fee level on average?

a) 130/30 equity only; b) Convertible bond arbitrage; c) Event driven; d) Fund-of-funds

You are an investor with Cowher Fund Management, a hedge fund specializing in a market neutral statistical abritrage strategy. The fund had several down years, but this most recent year's returns have been spectacular. The contract you signed had a high water mark provision where you do not have to pay the performance fee on any returns less than the previous high asset value. You pay a 1% management fee, a 25% performance fee. At the start of the year your investment assets were valued at $75,000,000. Your High Water Mark is $97,000,000. The fund earned a reported 39% return. What is the amount of the total fee paid in dollars?

a) $1,563,750; b) $2,562,500; c) $2,937,500; d) $3,376,250