What is net leverage of the hedge fund

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Consider a hedge fund with $38 million in net asset value (NAV) has taken a $100 million long position in ABC Inc. and a $100 million short position in XYZ Inc. Both positions were opened at $50 per share and both have a 15% margin requirement. Both share prices increase over the next year, with ABC share trading at $55 while the share price of XYZ jumps to $60. Assume that the bank lending rate is 2.00%, the risk free rate on excess cash is 1.75%, the additional debit spread on financing the long positions is 0.25%, and the lending fee (i.e., stock borrow spread) at 0.75% on the short positions.

Problem 1. What is the leverage, and gross and net leverage of the hedge fund?

Reference no: EM132657652

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