Hedge Fund NOF w/ hurdle calculation question

CFA Level I Alternative Investments
#1

An investor allocates $10 million at the beginning of the year to a hedge fund charging a management fee of 2% and an incentive fee of 20% with a 6%(hard) hurdle rate. At year end the value of the investment is $11.8 million. The incentive fee is calculated net of the management fee and the management fee is based on the year­end value. The net­ of­ fees return the investor earned is closest to:

A.) 13.24%

B.) 13.93%

C.) 13.71%

I chose A, and the answer explanation gave 13.24% as the answer when they walked through how to calculate it. Am I correct and this is just an error on their end?

#2

I got A.) 13.24%, too. You’re correct and their end has error.

#3

I get 13.71% … how did you derive your answer? 11,800,000 * 0.02 = $236,000 MER 11,564,000 - 10,000,000 = 1,564,000 1,564,000/10,000,000 = 15.64% 15.64% - 6% = 9.64% 9.64% * 0.2 = 1.928% 15.64% - 1.928% = 13.712% Is net of managment fee the same as independant of management fee or post managment fee?

#4

Cool thanks for making me sane again

#5

I had same issue. I believe this is a question from the CFA topic tests; if so, you might want to review the ethics section.

#6

That came across wrong, I was also asking a question not trying to smugly answer yours. Can someone confirm the correct answer as I have seen it both ways in topic tests and mock exams.

#7

I believe the answer should be C.

As it says “The incentive fee is calculated net of the management fee”, so we should subtract 0.236 to calculate incentive fee.