A fund has generated total returns of 19%, with a hurdle rate of 15%. If the additional incentive payable to the manager is 5%, the percentage of total returns that this incentive represents is 0.2%.

Practice question from NISM Series XIX A- Alternative Investments Funds (AIF) Distributors Mock Test 5 — bank. The correct answer is highlighted below with a full explanation.

Options

A

2%
B

1.8%
C

0.8%
0.2%

Correct answer

Why this is the answer

Excess return over hurdle is 4% (19% - 15%), and 5% of this excess (5% of 4%) equals 0.2%.

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NISM Series XIX A- Alternative Investmen…