Use the information below to answer questions 604 through 605:

Maximus Hedge Fund has a 3 and 20 fee structure without a hurdle rate. All fees are calculated based
on the NAV at the beginning of the year. The fund's NAV has increased from $200 million at the
beginning of the year to $240 million at the year end before any fees have been deducted. The fund's
high watermark is at $200 million. If the fund's high watermark had been $210 million, which of the
following comes closest to the value of the fund's end of the year NAV net of fees?
A. $226.6 million
B. $229.2 million
C. $231.4 million
D. $234 million

Opening NAV 200

End NAV 240
Management fees (200 x 0.03) (6)
Performance fees (240 – 210 – 6) x 0.20 (4.4)
NAV net of fees 229.2

Maximus Hedge Fund has a 3 and 20 fee structure without a hurdle rate. All fees are calculated based
on the NAV at the beginning of the year. The fund's NAV has increased from $200 million at the
beginning of the year to $240 million at the year-end before any fees have been deducted. The fund's
high watermark is at $200 million. Which of the following is the incentive fee earned by the fund
manager as a percentage of the hedge fund's NAV?

A. 1.0%
B. 3.0%
C. 3.4%
D. 4.0%

Opening NAV 200

End NAV 240
Management fees (200 x 0.03) (6)
Performance fees (240 – 200 – 6) x 0.20 (6.8)
NAV net of fees 227.2
As a percentage (6.8/227.2) 3%

381 A private equity fund allocated $500,000 to Project A and $500,000 to Project B in January 2009.
At the end of December 2009, Project A had generated a profit of $100,000 and Project B had
experienced a complete loss. The carried interest is 20% for the fund manager and the fund has a
hard hurdle rate of 5% annually. Which of the following is the dollar amount of the manager’s carried
interest for 2009, if profits are determined on an aggregate transaction basis?

A. $5,000
B. $10,000
C. $15,000
D. $20,000

Hurdle rate = 1 000 000 x 0.05 = 50 000

Carried interest = (100 000 – 50 000) x 0.20 = 10 000

382. A private equity fund allocated $500,000 to Project A and $500,000 to Project B in January
2009. At the end of December 2009, Project A had generated a profit of $100,000 and Project B had
experienced a complete loss. The carried interest is 20% for the fund manager and the fund has a
hard hurdle rate of 5% annually. Which of the following is the dollar amount of the manager's carried
interest for 2009, if profits are determined on an individual transaction basis?
A. $0
B. $3,000
C. $15,000
 D. $20,000

Hurdle rate = 500 000 x 0.05 = 25 000

Carried interest = (100 000 – 25 000) x 0.20 = 15 000

581 A hedge fund has a 2% and 20 fee structure with no hurdle rate. The fund's net asset value
(NAV) at the start of the year is $250 million and at the end of the year, before fees, is $300 million.
Which of the following is the fund's ending NAV after fees? (use opening NAV for management fee
calculation )
A. $266 million
B. $275 million
C. $286 million
D. $295 million

Opening NAV 250

End NAV 300
Management fees (250 x 0.02) (5)
Performance fees (300 – 250 – 5) x 0.20 (9)
NAV net of fees 286