Consider a hedge fund with $100 million at the start of the year. The benchmark S&P 500 Index was up 12% during the same period. The gross return on assets is 20%, and the expense ratio is 1.0%. For each 1% above the benchmark return, the fund managers receive a 0.2% incentive bonus.

1) Figure out the management cost ($) based on the end-of-year balance. (30points)

2) Figure out the annual return (%) based on the end-of-year balance. (30points)

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