Question 1

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

Question 2

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

Accepted Answer

A)   Hedge funds
B)   Mutual funds
C)   ADRs
D)   Hedge funds and ADRs
E)   Mutual funds and ADRsF) B) and E)
G) A) and E) B

Question 3

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) A) and D)

Question 4

Hedge funds differ from mutual funds in terms of

Accepted Answer

A)   transparency.
B)   investors.
C)   investment strategy.
D)   liquidity.
E)   All of the options are correct.F) A) and D)
G) B) and E) E

Question 5

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 options are correct.F) B) and C)
G) C) and D)

Question 6

______ bias arises when the returns of unsuccessful funds are left out of the sample.

Accepted Answer

A)   Survivorship
B)   Backfill
C)   Omission
D)   Incubation
E)   None of the options are correct.F) A) and B)
G) A) and E)

Question 7

Unlike mutual funds, hedge funds

Accepted Answer

A)   allow private investors to pool assets to be managed by a fund manager.
B)   are commonly organized as private partnerships.
C)   are subject to extensive SEC regulations.
D)   are typically only open to wealthy or institutional investors.
E)   are commonly organized as private partnerships and are typically only open to wealthy or institutional investors.F) None of the above
G) C) and E)

Question 8

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 options are correct.F) C) and E)
G) B) and C)

Question 9

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

Accepted Answer

A)   pure play.
B)   relative play.
C)   long shot.
D)   sure thing.
E)   relative play and sure thing.F) A) and B)
G) A) and C)

Question 10

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 D)
F) A) and B)

Question 11

The typical hedge fund fee structure is

Accepted Answer

A)   a management fee of 1% to 2%.
B)   an annual incentive fee equal to 20% of investment profits beyond a stipulated benchmark performance.
C)   a 12-b1 fee of 1%.
D)   a management fee of 1% to 2% and an annual incentive fee equal to 20% of investment profits beyond a stipulated benchmark performance.
E)   a management fee of 1% to 2% and a 12-b1 fee of 1%.F) A) and D)
G) B) and E)

Question 12

Assume that you manage a $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 14
C)   buying 1
D)   buying 14
E)   selling 6F) C) and E)
G) A) and C)

Question 13

Hedge funds are ______ transparent than mutual funds because of ______ strict SEC regulation on hedge funds.

Accepted Answer

A)   more; more
B)   more; less
C)   less; less
D)   less; moreE) A) and B)
F) All of the above

Question 14

______ uses quantitative techniques, and often automated trading systems, to seek out many temporary misalignments among securities.

Accepted Answer

A)   Covered interest arbitrage
B)   Locational arbitrage
C)   Triangular arbitrage
D)   Statistical arbitrage
E)   All arbitrageF) B) and C)
G) B) and E) D

Question 15

______ 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 options are correct.F) A) and B)
G) A) and C)

Question 16

Sadka (2010)  shows that exposure to unexpected declines in ________ is an important determinant of average hedge fund returns, and that the spreads in average returns across funds with the highest and lowest ________ may be as much as 6% annually.

Accepted Answer

A)   market risk; systematic risk
B)   market liquidity; liquidity risk
C)   unsystematic risk; unique risk
D)   default risk; default riskE) A) and D)
F) A) and C)

Question 17

Like mutual funds, hedge funds

Accepted Answer

A)   allow private investors to pool assets to be managed by a fund manager.
B)   are commonly organized as private partnerships.
C)   are subject to extensive SEC regulations.
D)   are typically only open to wealthy or institutional investors.
E)   are commonly organized as private partnerships and are typically only open to wealthy or institutional investors.F) A) and E)
G) D) and E)

Question 18

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 D)
F) A) and C)

Question 19

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

Accepted Answer

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)   lock-up; several hoursF) A) and E)
G) All of the above

Question 20

Performance evaluation of hedge funds is complicated by

Accepted Answer

A)   liquidity premiums.
B)   survivorship bias.
C)   unreliable market valuations of infrequently-traded assets.
D)   merger arbitrage.
E)   All of the options are correct.F) A) and C)
G) B) and D)

Exam 26: Hedge Funds

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

Correct Answer
verified

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

Correct Answer
verified
B

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 funds differ from mutual funds in terms of

Correct Answer
verified
E

Shares in hedge funds are priced

Correct Answer
verified

______ bias arises when the returns of unsuccessful funds are left out of the sample.

Correct Answer
verified

Unlike mutual funds, hedge funds

Correct Answer
verified

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

Correct Answer
verified

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

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

The typical hedge fund fee structure is

Correct Answer
verified

Correct Answer
verified

Hedge funds are transparent than mutual funds because of strict SEC regulation on hedge funds.

Correct Answer
verified

______ uses quantitative techniques, and often automated trading systems, to seek out many temporary misalignments among securities.

Correct Answer
verified
D

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

Correct Answer
verified

Sadka (2010) shows that exposure to unexpected declines in is an important determinant of average hedge fund returns, and that the spreads in average returns across funds with the highest and lowest may be as much as 6% annually.

Correct Answer
verified

Like mutual funds, hedge funds

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Performance evaluation of hedge funds is complicated by

Correct Answer
verified

Exam 26: Hedge Funds

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedB

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 funds differ from mutual funds in terms of

Correct AnswerverifiedE

Shares in hedge funds are priced

Correct AnswerverifiedShow Answer

______ bias arises when the returns of unsuccessful funds are left out of the sample.

Correct AnswerverifiedShow Answer

Unlike mutual funds, hedge funds

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

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

The typical hedge fund fee structure is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Hedge funds are ______ transparent than mutual funds because of ______ strict SEC regulation on hedge funds.

Correct AnswerverifiedShow Answer

______ uses quantitative techniques, and often automated trading systems, to seek out many temporary misalignments among securities.

Correct AnswerverifiedD

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

Correct AnswerverifiedShow Answer

Sadka (2010) shows that exposure to unexpected declines in ________ is an important determinant of average hedge fund returns, and that the spreads in average returns across funds with the highest and lowest ________ may be as much as 6% annually.

Correct AnswerverifiedShow Answer

Like mutual funds, hedge funds

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Performance evaluation of hedge funds is complicated by

Correct AnswerverifiedShow Answer

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

Correct Answer
verified

Correct Answer
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B

Correct Answer
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Correct Answer
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E

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

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Hedge funds are transparent than mutual funds because of strict SEC regulation on hedge funds.

Correct Answer
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Correct Answer
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D

Correct Answer
verified

Sadka (2010) shows that exposure to unexpected declines in is an important determinant of average hedge fund returns, and that the spreads in average returns across funds with the highest and lowest may be as much as 6% annually.

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
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