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Exam 26: Hedge Funds

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Question 21

Multiple Choice

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

A) Hedge Funds; hedge funds
B) Mutual funds; hedge funds
C) Hedge Funds; mutual funds
D) Mutual funds; mutual funds
E) None of the options are correct.

F) A) and B)
G) B) and E)

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Question 22

Multiple Choice

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

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 options are correct.

F) D) and E)
G) A) and C)

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Question 23

Multiple Choice

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

Hedge fund strategies can be classified as

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

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

Hedge funds often have ______ provisions as long as ______, which preclude redemption.

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

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

Hedge funds ______ engage in market timing ______ take extensive derivative positions.

Hedge fund incentive fees are essentially

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

A hedge fund pursuing a ______ strategy is trying to exploit relative mispricing within a market but is hedged to avoid taking a stance on the direction of the broad market.

Hedge funds may invest or engage in

Statistical arbitrage is a version of a ______ strategy.

A hedge fund pursuing a ______ strategy is betting one sector of the economy will outperform other sectors.

Pairs trading is associated with

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) .

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

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.