Question 1

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

Accepted Answer

A)  redemption notices; of several weeks to several months
B)  redemption notices; of several hours to several days
C)  redemption notices; of several days to several weeks
D)  lock-up; several years
E)  lock-up; several hoursF) B) and D)
G) A) and E)

Question 2

Statistical arbitrage is a version of a ______ strategy.

Accepted Answer

A)  market neutral
B)  directional
C)  relative value
D)  divergence
E)  convergenceF) A) and B)
G) A) and D)

Question 3

Regarding hedge fund incentive fees, hedge fund managers ______ if the portfolio return is very large and ______ if the portfolio return is negative.

Accepted Answer

A)  get nothing; get nothing
B)  refund the fee; get the fee
C)  get the fee; lose nothing except the incentive fee
D)  get the fee; lose the management fee
E)  None of the optionsF) B) and C)
G) C) and D)

Question 4

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 B)
G) A) and C)

Question 5

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) None of the above
F) A) and B)

Question 6

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

Accepted Answer

A)  can shift rapidly and substantially; challenging
B)  can shift rapidly and substantially; straightforward
C)  is stable; challenging
D)  is stable; straightforward
E)  None of the optionsF) D) and E)
G) B) and D)

Question 7

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) .

Accepted Answer

A)  selling 1
B)  selling 7
C)  buying 1
D)  buying 7
E)  selling 11F) B) and D)
G) C) and D)

Question 8

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

Accepted Answer

A)  Survivorship
B)  Backfill
C)  Omission
D)  Incubation
E)  None of the optionsF) All of the above
G) A) and E)

Question 9

Assume newly issued 30-year-on-the-run bonds sell at higher yields (lower prices)  than 29½-year bonds with a nearly identical duration.A hedge fund that sells 29½-year bonds and buys 30-year bonds is taking a

Accepted Answer

A)  market neutral position.
B)  conservative position.
C)  bullish position.
D)  bearish position.E) A) and B)
F) All of the above

Question 10

Hedge fund incentive fees are essentially

Accepted Answer

A)  put options on the portfolio with a strike price equal to the current portfolio value.
B)  put options on the portfolio with a strike price equal to the expected future portfolio value.
C)  call options on the portfolio with a strike price equal to the expected future portfolio value.
D)  call options on the portfolio with a strike price equal to the current portfolio value times one plus the benchmark return.
E)  straddles.F) A) and E)
G) All of the above

Question 11

Hedge funds are typically set up as ______ and provide ______ information about portfolio composition and strategy to their investors.

Accepted Answer

A)  limited liability partnerships; minimal
B)  limited liability partnerships; extensive
C)  investment trusts; minimal
D)  investment trusts; extensiveE) B) and C)
F) B) and D)

Question 12

Assume newly issued 30-year-on-the-run bonds sell at higher yields (lower prices)  than 29½-year bonds with a nearly identical duration.A hedge fund that sells 29½-year bonds and buys 30-year bonds is taking a

Accepted Answer

A)  market neutral position.
B)  conservative position.
C)  bullish position.
D)  bearish position.E) B) and C)
F) None of the above

Question 13

Alpha seeking hedge funds typically ______ relative mispricing of specific securities and ______ broad market exposure.

Accepted Answer

A)  bet on; bet on
B)  hedge; hedge
C)  hedge; bet on
D)  bet on; hedge
E)  None of the optionsF) All of the above
G) D) and E)

Question 14

Hedge funds differ from mutual funds in terms of

Accepted Answer

A)  transparency.
B)  investors.
C)  investment strategy.
D)  liquidity.
E)  All of the optionsF) A) and E)
G) A) and B)

Question 15

A hedge fund attempting to profit from a change in the spread between mortgages and Treasuries is using a ______ strategy.

Accepted Answer

A)  market neutral
B)  directional
C)  relative value
D)  divergence
E)  convergenceF) C) and D)
G) A) and B)

Question 16

______ are the dominant form of investing in securities markets for most individuals, but ______ have enjoyed a far greater growth rate in the last decade.

Accepted Answer

A)  Hedge Funds; hedge funds
B)  Mutual funds; hedge funds
C)  Hedge Funds; mutual funds
D)  Mutual funds; mutual funds
E)  None of the optionsF) A) and B)
G) C) and E)

Question 17

Shares in hedge funds are priced

Accepted Answer

A)  at NAV.
B)  a significant premium to NAV.
C)  a significant discount from NAV.
D)  a significant premium to NAV or a significant discount from NAV.
E)  None of the optionsF) B) and C)
G) D) and E)

Question 18

Hedge funds may invest or engage in

Accepted Answer

A)  distressed firms.
B)  convertible bonds.
C)  currency speculation.
D)  merger arbitrage.
E)  All of the optionsF) B) and C)
G) A) and E)

Question 19

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 optionsF) A) and B)
G) D) and E)

Question 20

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

Accepted Answer

A)  more; advertise
B)  more; do not advertise
C)  less; advertise
D)  less; do not advertiseE) A) and C)
F) C) and D)

Exam 26: Hedge Funds

Assume newly issued 30-year-on-the-run bonds sell at higher yields (lower prices) than 29½-year bonds with a nearly identical duration.A hedge fund that sells 29½-year bonds and buys 30-year bonds is taking a

Correct Answer
verified

Alpha seeking hedge funds typically relative mispricing of specific securities and broad market exposure.

Correct Answer
verified

Regarding hedge fund incentive fees, hedge fund managers if the portfolio return is very large and if the portfolio return is negative.

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

A hedge fund attempting to profit from a change in the spread between mortgages and Treasuries is using a ______ strategy.

Correct Answer
verified

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

Correct Answer
verified

are the dominant form of investing in securities markets for most individuals, but have enjoyed a far greater growth rate in the last decade.

Correct Answer
verified

Hedge funds differ from mutual funds in terms of

Correct Answer
verified

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

Statistical arbitrage is a version of a ______ strategy.

Correct Answer
verified

Assume newly issued 30-year-on-the-run bonds sell at higher yields (lower prices) than 29½-year bonds with a nearly identical duration.A hedge fund that sells 29½-year bonds and buys 30-year bonds is taking a

Correct Answer
verified

Hedge fund incentive fees are essentially

Correct Answer
verified

Hedge funds may invest or engage in

Correct Answer
verified

Hedge funds are prohibited from investing or engaging in

Correct Answer
verified

Hedge funds are typically set up as and provide information about portfolio composition and strategy to their investors.

Correct Answer
verified

Shares in hedge funds are priced

Correct Answer
verified

The risk profile of hedge funds , making performance evaluation .

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

Assume newly issued 30-year-on-the-run bonds sell at higher yields (lower prices) than 29½-year bonds with a nearly identical duration.A hedge fund that sells 29½-year bonds and buys 30-year bonds is taking a

Correct AnswerverifiedShow Answer

Alpha seeking hedge funds typically ______ relative mispricing of specific securities and ______ broad market exposure.

Correct AnswerverifiedShow Answer

Regarding hedge fund incentive fees, hedge fund managers ______ if the portfolio return is very large and ______ if the portfolio return is negative.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A hedge fund attempting to profit from a change in the spread between mortgages and Treasuries is using a ______ strategy.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

______ are the dominant form of investing in securities markets for most individuals, but ______ have enjoyed a far greater growth rate in the last decade.

Correct AnswerverifiedShow Answer

Hedge funds differ from mutual funds in terms of

Correct AnswerverifiedShow Answer

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

Statistical arbitrage is a version of a ______ strategy.

Correct AnswerverifiedShow Answer

Assume newly issued 30-year-on-the-run bonds sell at higher yields (lower prices) than 29½-year bonds with a nearly identical duration.A hedge fund that sells 29½-year bonds and buys 30-year bonds is taking a

Correct AnswerverifiedShow Answer

Hedge fund incentive fees are essentially

Correct AnswerverifiedShow Answer

Hedge funds may invest or engage in

Correct AnswerverifiedShow Answer

Hedge funds are prohibited from investing or engaging in

Correct AnswerverifiedShow Answer

Hedge funds are typically set up as ______ and provide ______ information about portfolio composition and strategy to their investors.

Correct AnswerverifiedShow Answer

Shares in hedge funds are priced

Correct AnswerverifiedShow Answer

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

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

Alpha seeking hedge funds typically relative mispricing of specific securities and broad market exposure.

Correct Answer
verified

Regarding hedge fund incentive fees, hedge fund managers if the portfolio return is very large and if the portfolio return is negative.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

are the dominant form of investing in securities markets for most individuals, but have enjoyed a far greater growth rate in the last decade.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Hedge funds are typically set up as and provide information about portfolio composition and strategy to their investors.

Correct Answer
verified

Correct Answer
verified

The risk profile of hedge funds , making performance evaluation .

Correct Answer
verified

Correct Answer
verified