at does a hurdle rate of 3% mean for the manager of a hedge fund? a) The manager

Question

at does a hurdle rate of 3% mean for the manager of a hedge fund? a) The manager earns an incentive fee only if the return on the fund is greater than 396. b) The manager earns a management fee only if the return on the fund is greater than its 2, Wh benchmark return plus 3%. c) he manager earns an incentive fee only if the return on the fund is greater than its T benchmark return plus 3%. d) The manager earns a management fee only if the return on the fund is greater than 3%. 3. Calculate the incentive fee paid to a hedge fund manager with a hurdle rate of 3% and an annual fund return of 17%. a) 3% b) 1406 c) 17% d) 20% 4. What are the liquidity dates on a hedge fund? a) The dates on which new investors can buy units in the hedge fund. b) The dates on which investors in the hedge fund can redeem their units. c) The dates on which the hedge fund's short positions are expected to be covered. d) The dates on which the hedge fund is required to hold more than 50% of its net assets in cash. 5. Which of the following types of hedge funds is considered an event-driven fund a) Equity market neutral fund. b) Convertible arbitrage fund. c) Dedicated short bias fund d) Merger arbitrage fund.

Explanation / Answer

2. a

(Manager will get an incentive fee if the performance is higher than the hurdle rate)

3. 14%

(Incentive fee is paid on the excess of funds performance over the hurdle rate= 17%-3%)

4. b

(Dates on which investors can redeem their shares on a hedge fund are the liquidity dates since they liquify the investment)

5. d Merger arbitrage fund

(It is based on a corporate event, such as a bankruptcy, merger, acquisition or spinoff )

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