Consider a hedge fund with $250 million in assets at the start of the year.If the gross return on assets is 18% and the total expense ratio is 2.5% of the year end value,what is the rate of return on the fund?

Question

Quizplus · Accepted Answer

First, calculate the expenses incurred by the fund:
Expense ratio = 2.5% of year end value
Assuming the year end value is equal to the start of the year value plus gross return:
Year end value = $250 million + (18% x $250 million) = $295 million
Expenses = 2.5% x $295 million = $7.375 million

Next, calculate the net return on assets:
Net return = gross return - expenses
Net return = 18% - 2.5% = 15.5%

Finally, calculate the rate of return on the fund:
Rate of return = net return / assets
Rate of return = 15.5% / $250 million = 0.155
Rate of return = 15.05% (rounded to two decimal places)

Consider a Hedge Fund with $250 Million in Assets at the Start