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A fund has an initial investment of $100 million from investors. The investors will receive an 8 percent preferred return. After the preferred return is met, remaining distributions will be split 80 percent to the investors and 20 percent to the fund manager. Funds available for distribution after the regular fund management fee are as follows: Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Fund Cash Flow for Distribution After Management Fee $ 5.00 $ 10.00 $ 20.00 $ 30.00 $ 50.00 $ 40.00 $ 30.00 $ 20.00 $ 10.00 $ 5.00 Required: a. How many years will it take until the investor gets the 8 percent preferred return? b. What will be the split in distributions to the investor and the manager for the year found in which preferred return is achieved? c. What will the investor's IRR be over the entire 10 years? d. What will the total promote earned by the fund manager be for the 10 years?

A fund has an initial investment of $100 million from investors. The investors will receive an 8 percent preferred return. After the preferred return is met, remaining distributions will be split 80 percent to the investors and 20 percent to the fund manager. Funds available for distribution after the regular fund management fee are as follows: Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Fund Cash Flow for Distribution After Management Fee $ 5.00 $ 10.00 $ 20.00 $ 30.00 $ 50.00 $ 40.00 $ 30.00 $ 20.00 $ 10.00 $ 5.00 Required: a. How many years will it take until the investor gets the 8 percent preferred return? b. What will be the split in distributions to the investor and the manager for the year found in which preferred return is achieved? c. What will the investor's IRR be over the entire 10 years? d. What will the total promote earned by the fund manager be for the 10 years?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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A fund has an initial investment of $100 million from investors. The investors will receive an 8 percent preferred return. After the preferred return is met, remaining distributions will be split 80 percent to the investors and 20 percent to the fund manager. Funds available for distribution after the regular fund management fee are as follows: Fund Cash Flow for Distribution After Management Fee Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8. Year 9 Year 10 $ 5.00 $ 10.00 $ 20.00 $ 30.00 $ 50.00 $ 40.00 $ 30.00 $ 20.00 $ 10.00 $ 5.00 Required: a. How many years will it take until the investor gets the 8 percent preferred return? b. What will be the split in distributions to the investor and the manager for the year found in which preferred return is achieved? c. What will the investor's IRR be over the entire 10 years? d. What will the total promote earned by the fund manager be for the 10 years?
Transcribed Image Text:A fund has an initial investment of $100 million from investors. The investors will receive an 8 percent preferred return. After the preferred return is met, remaining distributions will be split 80 percent to the investors and 20 percent to the fund manager. Funds available for distribution after the regular fund management fee are as follows: Fund Cash Flow for Distribution After Management Fee Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8. Year 9 Year 10 $ 5.00 $ 10.00 $ 20.00 $ 30.00 $ 50.00 $ 40.00 $ 30.00 $ 20.00 $ 10.00 $ 5.00 Required: a. How many years will it take until the investor gets the 8 percent preferred return? b. What will be the split in distributions to the investor and the manager for the year found in which preferred return is achieved? c. What will the investor's IRR be over the entire 10 years? d. What will the total promote earned by the fund manager be for the 10 years?
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