8.) 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 fund's manager is compensated with 'two and twenty.' The manager's 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 manager's total compensation in dollars for the year?

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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8.) 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 fund's manager is compensated with 'two and twenty.' The manager's 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 manager's total compensation in dollars for the year?
Transcribed Image Text:8.) 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 fund's manager is compensated with 'two and twenty.' The manager's 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 manager's total compensation in dollars for the year?
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