Assume the risk-free interest rate is 10% and is equal to the fund's benchmark, the portfolio's net asset value is $100, and the fund's standard deviation is 20%. Also assume a time horizon of 1 year.
Assuming a 2% management fee and a 20% incentive bonus, what is the expected management compensation per share if the fund's net asset value exceeds the stated benchmark?

Question

Quizplus · Accepted Answer

N(d₁) = N 11eaaae8_8b3a_7572_a4b8_cdc84049dde1_TB6474_00 = N (0.1234) = 0.5495 d₂ = d₁ - .2(1).5 = .1234 - .2 = -.766; N(d₂) = .4697 Call value = S0N(d₁) - Xe-rTN(d₂) = (100)(.5495) - (110)e-^(.1)(.4697) = $8.18 Expected incentive fee is 2% of year-end NAV + 20% of the value of $110 call option = .02(110) + .2(8.18) = $3.84

Assume the Risk-Free Interest Rate Is 10% and Is Equal