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Homework answers / question archive / What is the expected return for the hedge fund in case of the investment with a 0
What is the expected return for the hedge fund in case of the investment with a 0.4 probability of a 50% return and a 0.6 probability of a -50% return, with the fees being 2 plus 20%
P1=0.4
P2 = 0.6
R1= 50 %
R2 = -50 %
Expected Return before fee = (P1 *R1) + (P2 *R2) +
= (0.4 *0.5) + (0.6 * -0.5)
= 0.20 - 0.30
= -0.10 or negative 10%
Only assets management fee will applicable in case of loss on hedge fund
Expected Return after fee = Expected return + 2% fee
= 12% negative
