Assume that you have invested $500 000 to purchase shares in a hedge fund reporting $800 million in assets, $100 million in liabilities and 70 million shares outstanding. Your initial lock-out period is 3 years. If the share price after 3 years increases to $15.28, and using your calculation for how many shares you purchased, what is your annualised return over the 3-year holding period?

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Quizplus · Accepted Answer

The initial share price is calculated as (Assets - Liabilities) / Shares Outstanding = ($800M - $100M) / 70M = $10. After 3 years, the share price is $15.28. The number of shares purchased is $500,000 / $10 = 50,000 shares. The value after 3 years is 50,000 * $15.28 = $764,000. The annualised return is calculated using the formula [(Final Value / Initial Value)^(1/3)] - 1 = [($764,000 / $500,000)^(1/3)] - 1 = 15.18%.

Assume That You Have Invested $500 000 to Purchase Shares