Question 1

Hedge fund performance may reflect significant compensation for ________ risk.

Accepted Answer

A)   liquidity
B)   systematic
C)   unsystematic
D)   default
E)   unsystematic and defaultF) B) and C)
G) A) and D)

Question 2

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

Accepted Answer

A)   short sell the Treasury bonds and short sell the mortgage-backed securities.
B)   short sell the Treasury bonds and buy the mortgage-backed securities.
C)   buy the Treasury bonds and buy the mortgage-backed securities.
D)   buy the Treasury bonds and short sell the mortgage-backed securities.E) All of the above
F) A) and D)

Question 3

The previous value of a portfolio that must be reattained before a hedge fund can charge incentive fees is known as a

Accepted Answer

A)   benchmark.
B)   water stain.
C)   water mark.
D)   high water mark.
E)   low water mark.F) A) and D)
G) A) and E)

Question 4

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

Accepted Answer

A)   very low; hedging techniques to eliminate risk
B)   low; risk management techniques to reduce risk
C)   considerable; risk management techniques to reduce risk
D)   considerable; considerable leverageE) B) and C)
F) A) and D)

Question 5

Hedge funds are prohibited from investing or engaging in

Accepted Answer

A)   distressed firms.
B)   convertible bonds.
C)   currency speculation.
D)   merger arbitrage.
E)   None of the options are correct.F) B) and E)
G) All of the above

Question 6

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) .

Accepted Answer

A)   selling 1
B)   selling 6
C)   buying 1
D)   buying 6
E)   selling 4F) None of the above
G) A) and B)

Question 7

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) .

Accepted Answer

A)   selling 1
B)   selling 8
C)   buying 1
D)   buying 8
E)   selling 6F) A) and B)
G) D) and E)

Exam 26: Hedge Funds

The previous value of a portfolio that must be reattained before a hedge fund can charge incentive fees is known as a

Correct Answer
verified

Hedge fund performance may reflect significant compensation for ________ risk.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Hedge funds are prohibited from investing or engaging in

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Exam 26: Hedge Funds

The previous value of a portfolio that must be reattained before a hedge fund can charge incentive fees is known as a

Correct AnswerverifiedShow Answer

Hedge fund performance may reflect significant compensation for ________ risk.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Hedge funds are prohibited from investing or engaging in

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified