Question

A hedge fund charges an incentive fee of 15% of any investment returns above the T-bill rate, which currently is 3.0% but is subject to a high water mark. In the first year, the fund suffers a loss of 7.2%. What rate of return must it earn in the second year to be eligible for an incentive fee? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

6.09% 2 Cumulative return of 2 year must be equal to - 3 (1+r)^n-1 4 Return it must earn in the second year:- 5 =(1+cumulative return)/(1-first year return)-1 14.32% 2 Cumulative return of 2 year must be equal to - I=(1+3% 2-1 (1+r)^n-1 4 Return it must earn in the second year =(1+B2Y(1-7.2%)-1 5 =(1+cumulative return (1-first year return)-1