Which of the Following Best Describes the 2/20 Fee That

question 74

Multiple Choice

Which of the following best describes the 2/20 fee that is used by most hedge funds?

• A)The fund pays a 2% management fee and gives 20% of the profits to the investor.
• B)The fund pays a 2% management fee and keeps 20% of the profits.
• C)The investor pays a 2% management fee and receives 20% of the profits.
• D)The investor pays a 20% management fee and receives 80% of the profits.
• E)The investor pays a 2% management fee and gives 20% of the profits to the fund manager.

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Definitions:

Physical Capital

Refers to tangible assets used in the production of goods and services, such as machinery, buildings, and tools.

Productivity

The measure of the efficiency of production, often defined as the ratio of output to inputs in the production process.

Constant Returns To Scale

A situation in production where an increase in the input of resources leads to a proportionate increase in output, resulting in no change in average costs.

Production Function

The relationship between the quantity of inputs used to make a good and the quantity of output of that good.