Management Fees Problems

Financial Services & Trading Institutions Problems
Essay Questions
Answer all five (5) questions. Each question is worth up to six (6) points each. Each of your answers must be a minimum of 100 words.
* A hedge fund charges 2 plus 20%. Investors want a return after fees of 20%. How much does the hedge fund have to earn, before fees, to provide investors with this return? Assume that the incentive fee is paid on the net return after management fees have been subtracted.
The hedge fund would have to return around 27% assuming that the fees are paid on the net return after management fees have been subtracted. First, it was stated that the return is X(> 2%). Accordingly, the fees that the investors have paid can be represented by the following formula 0.02 + 0.2(X-0.02). Accordingly, this must mean that the hedge fund must be able to earn, before the fees are subjected with X-0.02 – 0.2(X-0.02) = 0.2. In turn, this can be transformed into 0.8x = 0.216 or by rounding up, x=0.27. All in all, this means that the hedge fund would have to return 0.27 or 27%.
* The bidders in a Dutch auction are listed below:Bidder # Shares PriceA 60,000 $50.00B 20,000 $80.00C 30,000 $55.00D 40,000 $38.00E 40,000 $42.00F 40,000 $42.00G 50,000 $35.00H 50,000 $60.00The number of shares being auctioned is 210,000. What is the price paid by investors? How many shares does each investor receive?
In this scenario, all the individuals would be betting the whole amount of their bidden shares with the exception of D and G, who would not be getting shares each. The first thing that we should do is to rank the number of shares with the highest bidders first. This would result in the following ranking; B, H, C, A, E, F, D, and G. It could be seen from their respective bought shares based on their rankings that B will get 20,000 shares for $80 each; H will get 50,000 shares for $60 each; C will get 30,000 shares for $55 each; A will get 60,000 shares at $50 each; E will get 40,000 at $42 each, and finally F will get ...