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Exam 26: Hedge Funds

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Question 1

Multiple Choice

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Hedge funds often employ ______ that require investors to provide ________ notice of their desire to redeem funds.

A) redemption notices; several weeks to several months
B) redemption notices; several hours to several days
C) redemption notices; several days to several weeks
D) lock-up; several years

E) B) and C)
F) A) and D)

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Question 2

Multiple Choice

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A hedge fund pursuing a ______ strategy is attempting to exploit temporary misalignments in relative pricing.

A) directional
B) nondirectional
C) stock or bond
D) arbitrage or speculation

E) A) and D)
F) B) and C)

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Question 3

Multiple Choice

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Hedge funds traditionally have ______ than 100 investors and ______ to the general public.

A ________ is an investment fraud in which a manager collects funds from clients, claims to invest those funds on their behalf, and reports extremely favorable investment returns, but in fact uses the funds for his or her own use.

Pairs trading is associated with

Assume that you manage a $1.3 million portfolio that pays no dividends and has a beta of 1.45 and an alpha of 1.5% per month.Also, assume that the risk-free rate is 0.025% (per month) and the S&P 500 is at 1,220.If you expect the market to fall within the next 30 days, you can hedge your portfolio by ______ S&P 500 futures contracts (the futures contract has a multiplier of $250) .

Hedge fund incentive fees are essentially

______ bias arises because hedge funds only report returns to database publishers if they want to.

________ refers to sorting through huge amounts of historical data to uncover systematic patterns in returns that can be exploited by traders.

Unlike mutual funds, hedge funds

A bet on particular mispricing across two or more securities with extraneous sources of risk, such as general market exposure hedged away, is a

If the yield on mortgage-backed securities was abnormally low compared to Treasury bonds, a hedge fund pursuing a relative value strategy would

Market neutral bets can result in ______ volatility because hedge funds use ______.

Assume that you manage a $2 million portfolio that pays no dividends and has a beta of 1.3 and an alpha of 2% per month.Also, assume that the risk-free rate is 0.05% (per month) and the S&P 500 is at 1,500.If you expect the market to fall within the next 30 days, you can hedge your portfolio by ______ S&P 500 futures contracts (the futures contract has a multiplier of $250) .

Statistical arbitrage is a version of a ______ strategy.

______ are subject to the Securities Act of 1933 and the Investment Company Act of 1940 to protect unsophisticated investors.

The risk profile of hedge funds ______, making performance evaluation ______.

An example of a ______ strategy is the mispricing of a futures contract that must be corrected by contract expiration.

______ must periodically provide the public with information on portfolio composition.

Assume that you manage a $2 million portfolio that pays no dividends and has a beta of 1.25 and an alpha of 2% per month.Also, assume that the risk-free rate is 0.05% (per month) and the S&P 500 is at 1,300.If you expect the market to fall within the next 30 days, you can hedge your portfolio by ______ S&P 500 futures contracts (the futures contract has a multiplier of $250) .