Which of the Following Is Correct Regarding the Compensation Paid

question 42

Multiple Choice

Which of the following is correct regarding the compensation paid to private equity fund managers?

• A)Managers typically receive 20% of fund profits but no separate management fee.
• B)Managers typically receive a high percentage management fee but no portion of fund profits.
• C)Management compensation is usually subject to a "clawback" provision to limit the performance fees.
• D)"Carried interest" refers to the interest fund managers earn on performance fees.
• E)Fees paid to fund managers do not reduce the net return of the fund.

---

Definitions:

Diseconomies of Scale

The phenomenon where, as a firm or industry grows beyond a certain point, per unit costs start increasing due to inefficiencies.

Economies of Scale

Cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output decreasing with increasing scale.

Diminishing Marginal Returns

The principle that as additional units of a factor of production are added, the increase in output will eventually decrease, holding other factors constant.

Constant Returns to Scale

A situation where increasing all inputs by a certain factor results in output increasing by the same factor, indicating proportionate scalability of production.