# Application 16 - 21 Flashcards

## practice equations

TTMAR Hedge Fund has a 1.5 management fee and 30 incentive fee

arrangement, with no hurdle rate and a NAV of $200 million at the start of the

year. At the end of the year, before fees, the NAV is $253 million. Assuming that

management fees are computed on start-of-year NAVs and are distributed

annually, find the annual management fee, the incentive fee, and the ending NAV

after fees, assuming no redemptions or subscriptions.

Annual Fee = Management Fee + (Max (0, Incentive fee x (Gross Return above HWM - Management Fee-Hurdle Rate))

management fee:

NAV start x management fee %

200 x 0.015 = 3

incentive fee: NAV end - management fee - NAV start x incentive fee % 253 - 3 - 200 x 0.30 = 15

ending NAV:

NAV end - MF - IF

253 - 3 - 15 = 235

TTMAR Hedge Fund has a 2 management fee and 20 incentive fee

arrangement, with no hurdle rate and a NAV of $200 million at the start of the

year. At the end of the year, before fees, the NAV is $250 million. Assuming that

management fees are computed on start-of-year NAVs and are distributed

annually, find the annual management fee, the incentive fee, and the ending NAV

after fees, assuming no redemptions or subscriptions.

management fee:

200 x 0.02 = 4

incentive fee:

250 - 4 - 200

46 x 0.2 = 9.2

NAV end:

250 - 4 - 9.2

= 236.80

TTMAR Hedge Fund has a 1.5 management fee and 20 incentive fee

arrangement, with no hurdle rate and a NAV of $300 million at the start of the

year. At the end of the year, before fees, the NAV is $400 million. Assuming that

management fees are computed on start-of-year NAVs and are distributed

annually, find the annual management fee, the incentive fee, and the ending NAV

after fees, assuming no redemptions or subscriptions.

?

TTMAR Hedge Fund has a 1.5 management fee and 15 incentive fee

arrangement, with no hurdle rate and a NAV of $250 million at the start of the

year. At the end of the year, before fees, the NAV is $450 million. Assuming that

management fees are computed on start-of-year NAVs and are distributed

annually, find the annual management fee, the incentive fee, and the ending NAV

after fees, assuming no redemptions or subscriptions.

?

TTMAR Hedge Fund has a 2 management fee and 30 incentive fee

arrangement, with no hurdle rate and a NAV of $100 million at the start of the

year. At the end of the year, before fees, the NAV is $250 million. Assuming that

management fees are computed on start-of-year NAVs and are distributed

annually, find the annual management fee, the incentive fee, and the ending NAV

after fees, assuming no redemptions or subscriptions.

?

TTMAR Hedge Fund has a 1 management fee and 30 incentive fee

arrangement, with no hurdle rate and a NAV of $100 million at the start of the

year. At the end of the year, before fees, the NAV is $101 million. Assuming that

management fees are computed on start-of-year NAVs and are distributed

annually, find the annual management fee, the incentive fee, and the ending NAV

after fees, assuming no redemptions or subscriptions.

?

TTMAR Hedge Fund has a 2 management fee and 15 incentive fee

arrangement, with no hurdle rate and a NAV of $100 million at the start of the

year. At the end of the year, before fees, the NAV is $105 million. Assuming that

management fees are computed on start-of-year NAVs and are distributed

annually, find the annual management fee, the incentive fee, and the ending NAV

after fees, assuming no redemptions or subscriptions.

?

VVMAR Hedge Fund has a 1.5 and 30 fee

arrangement, with no hurdle rate and a NAV of $200 million at the start of the

year. At the end of the year, after fees, the NAV is $270 million. Assuming that

management fees are computed on start-of-year NAVs and are distributed

annually, find the annual management fee, the incentive fee, and the ending NAV

before fees, assuming no redemptions or subscriptions. The incentive fee

represents 30% of the total profits and so represents the proportion 30%/70% to

the net profits to limited partners.

management fee:

NAV(0) x management fee % 200 x 0.015 = 3

incentive fee: NAV(1) - NAV(0) 270 - 200 = 70 x incentive fee % 70 x 0.30 = 21

1 - 0.3 (other side of incentive fee)

= 0.7

21 / 0.7 = 30

ending NAV:

200 + 3 + 70 + 30 = 303

VVMAR Hedge Fund has a 2 and 20 fee

arrangement, with no hurdle rate and a NAV of $100 million at the start of the

year. At the end of the year, after fees, the NAV is $300 million. Assuming that

management fees are computed on start-of-year NAVs and are distributed

annually, find the annual management fee, the incentive fee, and the ending NAV

before fees, assuming no redemptions or subscriptions. The incentive fee

represents 20% of the total profits and so represents the proportion 20%/80% to

the net profits to limited partners.

management fee:

100 x 0.02 = 2

incentive fee:

300 - 100 = 200

x 0.2 = 40

1 - 0.2 = 0.8

40 / 0.8 = 50

100 + 2 + 200 + 50 = 352

VVMAR Hedge Fund has a 1.5 and 25 fee

arrangement, with no hurdle rate and a NAV of $150 million at the start of the

year. At the end of the year, after fees, the NAV is $450 million. Assuming that

management fees are computed on start-of-year NAVs and are distributed

annually, find the annual management fee, the incentive fee, and the ending NAV

before fees, assuming no redemptions or subscriptions. The incentive fee

represents 25% of the total profits and so represents the proportion 25%/75% to

the net profits to limited partners.

?

VVMAR Hedge Fund has a 3 and 15 fee

arrangement, with no hurdle rate and a NAV of $200 million at the start of the

year. At the end of the year, after fees, the NAV is $500 million. Assuming that

management fees are computed on start-of-year NAVs and are distributed

annually, find the annual management fee, the incentive fee, and the ending NAV

before fees, assuming no redemptions or subscriptions. The incentive fee

represents 15% of the total profits and so represents the proportion 15%/85% to

the net profits to limited partners.

?

VVMAR Hedge Fund has a 2 and 20 fee

arrangement, with no hurdle rate and a NAV of $50 million at the start of the

year. At the end of the year, after fees, the NAV is $150 million. Assuming that

management fees are computed on start-of-year NAVs and are distributed

annually, find the annual management fee, the incentive fee, and the ending NAV

before fees, assuming no redemptions or subscriptions. The incentive fee

represents 20% of the total profits and so represents the proportion 20%/80% to

the net profits to limited partners.

?

VVMAR Hedge Fund has a 1.5 and 15 fee

arrangement, with no hurdle rate and a NAV of $75 million at the start of the

year. At the end of the year, after fees, the NAV is $200 million. Assuming that

management fees are computed on start-of-year NAVs and are distributed

annually, find the annual management fee, the incentive fee, and the ending NAV

before fees, assuming no redemptions or subscriptions. The incentive fee

represents 15% of the total profits and so represents the proportion 15%/85% to

the net profits to limited partners.

?

VVMAR Hedge Fund has a 1 and 15 fee

arrangement, with no hurdle rate and a NAV of $100 million at the start of the

year. At the end of the year, after fees, the NAV is $250 million. Assuming that

management fees are computed on start-of-year NAVs and are distributed

annually, find the annual management fee, the incentive fee, and the ending NAV

before fees, assuming no redemptions or subscriptions. The incentive fee

represents 15% of the total profits and so represents the proportion 15%/85% to

the net profits to limited partners.

?

Consider a $1 billion hedge fund with a 20%

incentive fee at the start of a new incentive fee computation period. If the hedge

fund computes incentive fees annually and begins the year very near its highwater

mark, what would be the value of the incentive fee over the next year for

annual asset volatilities of 10%, 20%, and 30% using the at-the-money incentive

fee approximation formula?

incentive fee call option value: i x 40% x NAV x SD x (square root) T

10% annual asset volatility:

20% x 40% x 1,000,000,000 x incentive fee (volatility) x (square root) Time

0.2 x 0.4 x 1,000,000,000 x 0.10 x (square root) 1

= 8,000,000

20% annual asset volatility:

0.2 x 0.4 x 1,000,000,000 x 0.2 x square root (1) = 16,000,000

30% annual asset volatility:

0.2 x 0.4 x 1,000,000,000 x 0.3 x square root (1) = 24,000,000

Consider a $500 million hedge fund with a 20%

incentive fee at the start of a new incentive fee computation period. If the hedge

fund computes incentive fees annually and begins the year very near its highwater

mark, what would be the value of the incentive fee over the next year for

annual asset volatility of 20%, and using the at-the-money incentive

fee approximation formula?

?

Consider a $250 million hedge fund with a 20%

incentive fee at the start of a new incentive fee computation period. If the hedge

fund computes incentive fees annually and begins the year very near its highwater

mark, what would be the value of the incentive fee over the next year for

annual asset volatilitiy of 30% using the at-the-money incentive

fee approximation formula?

?

Consider a $1 billion hedge fund with a 15%

incentive fee at the start of a new incentive fee computation period. If the hedge

fund computes incentive fees annually and begins the year very near its highwater

mark, what would be the value of the incentive fee over the next year for

annual asset volatilitiy of 40% using the at-the-money incentive

fee approximation formula?

?

Consider a $1 billion hedge fund with a 5%

incentive fee at the start of a new incentive fee computation period. If the hedge

fund computes incentive fees annually and begins the year very near its highwater

mark, what would be the value of the incentive fee over the next year for

annual asset volatility of 35% using the at-the-money incentive

fee approximation formula?

?

Consider a $500 million hedge fund with a 10%

incentive fee at the start of a new incentive fee computation period. If the hedge

fund computes incentive fees annually and begins the year very near its highwater

mark, what would be the value of the incentive fee over the next year for

annual asset volatility of 50% using the at-the-money incentive

fee approximation formula?

?

Consider a $150 million hedge fund with a 25%

incentive fee at the start of a new incentive fee computation period. If the hedge

fund computes incentive fees annually and begins the year very near its highwater

mark, what would be the value of the incentive fee over the next year for

annual asset volatility of 40% using the at-the-money incentive

fee approximation formula?

?

A stock price experiences the following 10

consecutive daily prices corresponding to days –10 to –1: 100, 102, 99, 97, 95,

100, 109, 103, 103, and 106. What are the simple (arithmetic) moving average

prices on day 0 using 3-day and 10-day moving averages, as well as the 3-day

moving average for days –2 and –1?

find the 3-day simple moving average on day 0:

106 + 103 + 103

/3 = 104

find the 3-day simple moving average on day -1:

103 + 103 + 109

/3 = 105

find the 3-day moving average on day -2:

103 + 109 + 100

/ 3 = 104

find the 10-day simple moving average on day 0:

106 + 103 + 103 + 109 + 100 + 95 + 97 + 99 + 102 + 100

/ 10 = 101.4

A stock price experiences the following 10

consecutive daily prices corresponding to days –10 to –1: 50, 51, 52, 50, 49, 47, 55, 53, 51, and 52. What are the simple (arithmetic) moving average

prices on day 0 using 3-day and 10-day moving averages, as well as the 3-day

moving average for days –2 and –1?

?

A stock price experiences the following 10

consecutive daily prices corresponding to days –10 to –1: 30, 31, 35, 36, 36, 37 34, 33, 35, 36 and 37. What are the simple (arithmetic) moving average

prices on day 0 using 3-day and 10-day moving averages, as well as the 3-day

moving average for days –2 and –1?

?

A stock price experiences the following 10

consecutive daily prices corresponding to days –10 to –1: 20, 21, 23, 19, 18, 17, 20, 21, 22, and 23. What are the simple (arithmetic) moving average

prices on day 0 using 3-day and 10-day moving averages, as well as the 3-day

moving average for days –2 and –1?

?

A stock price experiences the following 10

consecutive daily prices corresponding to days –10 to –1: 45, 47, 48, 46, 45, 44, 45, 44, 45, 47, 48, and 49. What are the simple (arithmetic) moving average

prices on day 0 using 3-day and 10-day moving averages, as well as the 3-day

moving average for days –2 and –1?

?

A stock price experiences the following 10

consecutive daily prices corresponding to days –10 to –1: 35, 33, 32, 31, 30, 29, 28, 27, 30 and 21. What are the simple (arithmetic) moving average

prices on day 0 using 3-day and 10-day moving averages, as well as the 3-day

moving average for days –2 and –1?

?

A stock price experiences the following 10

consecutive daily prices corresponding to days –10 to –1: 10, 9, 10, 11, 12, 14, 15, 17, 18, and 21. What are the simple (arithmetic) moving average

prices on day 0 using 3-day and 10-day moving averages, as well as the 3-day

moving average for days –2 and –1?

?

A stock price experiences the following 10

consecutive daily prices corresponding to days –10 to –1: 100, 102, 99, 97, 95,

100, 109, 103, 103, and 106. What are the five-day weighted moving average

prices on days –1 and 0?

five-day weighted moving average on day 0:

(106 x 5) + (103 x 4) + (103 x 3) + (109 x 2) + (100 x 1) / 15 = 104.6

five-day moving average on day-1:

(103 x 5) + (103 x 4) + (109 x 3) + (100 x 2) + (95 x 1)

/ 15 = 103.27

A stock price experiences the following 10

consecutive daily prices corresponding to days –10 to –1: 50, 51, 52, 50, 49, 47, 55, 53, 51, and 52. What are the five-day weighted moving average

prices on days –1 and 0?

?

A stock price experiences the following 10

consecutive daily prices corresponding to days –10 to –1: 30, 31, 35, 36, 36, 37 34, 33, 35, 36 and 37. What are the five-day weighted moving average prices on days - 1 and 0?

?

A stock price experiences the following 10

consecutive daily prices corresponding to days –10 to –1: 20, 21, 23, 19, 18, 17, 20, 21, 22, and 23. What are the five-day weighted moving average prices on days - 1 and 0?

?

A stock price experiences the following 10

consecutive daily prices corresponding to days –10 to –1: 45, 47, 48, 46, 45, 44, 45, 44, 45, 47, 48, and 49. What are the five-day weighted moving average prices on days - 1 and 0?

?

A stock price experiences the following 10

consecutive daily prices corresponding to days –10 to –1: 35, 33, 32, 31, 30, 29, 28, 27, 30 and 21. What are the five-day weighted moving average prices on days - 1 and 0?

?

A stock price experiences the following 10

consecutive daily prices corresponding to days –10 to –1: 10, 9, 10, 11, 12, 14, 15, 17, 18, and 21. What are the five-day weighted moving average prices on days - 1 and 0?

?

A stock price experiences the following five

consecutive daily prices corresponding to days –5 to –1: 100, 109, 103, 103, and

106. What are the exponential moving average prices on days –1 and 0 using

λ = 0.25?

Assume that the exponential moving average up to and including the

price on day –3 was 100.

EMA(λ) = λP(t-1) + λ(1-λ) P(t-2) + λ(1-λ)(^2) P (t-3) + λ(1-λ)(^3) P(t-4)

find the 5-day exponential moving average on day -1:

(0.25 x 103) + (1-0.25) 100

25.75 + 75 = 100.75

find the 5-day exponential moving average on day 0:

(106 x 0.25) + (1-0.25) 100.75 (day - 1 exponential moving average)

26.5 + 75.5625

= 102.0625

A stock price experiences the following five

consecutive daily prices corresponding to days –5 to –1: 47, 55, 53, 51, and 52. What are the exponential moving average prices on days –1 and 0 using

λ = 0.30?

Assume that the exponential moving average up to and including the

price on day –3 was 100.

what are the exponential moving average -1:

0.3 x 51 = 15.3

1-0.3 x 50 = 35

15.3 + 35 = 50.3

what are the exponential moving average 0:

52 x 0.3 = 15.6

1-0.3 x 50 = 35

15.6 + 35 = 50.6

A stock price experiences the following five

consecutive daily prices corresponding to days –5 to –1: 34, 33, 35, 36, and 37. What are the exponential moving average prices on days –1 and 0 using

λ = 0.35?

Assume that the exponential moving average up to and including the

price on day –3 was 33.

?