Question 1

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)  convergence 
A)  market neutral 
B)  directional 
C)  relative value 
D)  divergence 
E)  convergence

Question 2

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.

Accepted Answer

A)  directional 
B)  nondirectional 
C)  market neutral 
D)  arbitrage or speculation 
E)  nondirectional and market neutral 
A)  directional 
B)  nondirectional 
C)  market neutral 
D)  arbitrage or speculation 
E)  nondirectional and market neutral

Question 3

A hedge fund sets its fee at 2% and a 20% carry with an 8% benchmark. What is the Net IRR to the investors if over the course of a year if AUM started at $1,000,000 and ended the year at 1,120,000?

Accepted Answer

A)  8.96% 
B)  10.96% 
C)  11.30% 
D)  12.00% 
A)  8.96% 
B)  10.96% 
C)  11.30% 
D)  12.00%

Question 4

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 options are correct. 
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.

Question 5

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 options are correct. 
A)  distressed firms. 
B)  convertible bonds. 
C)  currency speculation. 
D)  merger arbitrage. 
E)  All of the options are correct.

Question 6

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; more 
A)  more; more 
B)  more; less 
C)  less; less 
D)  less; more

Question 7

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%. 
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%.

Question 8

A hedge fund sets its fee at 2% and a 20% carry with an 8% benchmark. What is the Net IRR to the investors if over the course of a year if AUM started at $2,000,000 and ended the year at 2,300,000?

Accepted Answer

A)  8.96% 
B)  10.96% 
C)  11.30% 
D)  12.00% 
A)  8.96% 
B)  10.96% 
C)  11.30% 
D)  12.00%

Question 9

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

Question 10

A hedge fund sets its fee at 2% and a 20% carry with an 8% benchmark. What is the Net IRR to the investors if over the course of a year if AUM started at $4,000,000 and ended the year at 5,300,000?

Accepted Answer

A)  28.65% 
B)  26.87% 
C)  24.95% 
D)  22.00% 
A)  28.65% 
B)  26.87% 
C)  24.95% 
D)  22.00%

Question 11

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 4 
A)  selling 1 
B)  selling 6 
C)  buying 1 
D)  buying 6 
E)  selling 4

Question 12

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. 
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.

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

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.

A hedge fund sets its fee at 2% and a 20% carry with an 8% benchmark. What is the Net IRR to the investors if over the course of a year if AUM started at $1,000,000 and ended the year at 1,120,000?

The risk profile of hedge funds , making performance evaluation .

Hedge funds may invest or engage in

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

The typical hedge fund fee structure is

A hedge fund sets its fee at 2% and a 20% carry with an 8% benchmark. What is the Net IRR to the investors if over the course of a year if AUM started at $2,000,000 and ended the year at 2,300,000?

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

A hedge fund sets its fee at 2% and a 20% carry with an 8% benchmark. What is the Net IRR to the investors if over the course of a year if AUM started at $4,000,000 and ended the year at 5,300,000?

Unlike mutual funds, hedge funds

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Efficient Diversification

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters

Exam 26: Hedge Funds

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

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.

A hedge fund sets its fee at 2% and a 20% carry with an 8% benchmark. What is the Net IRR to the investors if over the course of a year if AUM started at $1,000,000 and ended the year at 1,120,000?

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

Hedge funds may invest or engage in

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

The typical hedge fund fee structure is

A hedge fund sets its fee at 2% and a 20% carry with an 8% benchmark. What is the Net IRR to the investors if over the course of a year if AUM started at $2,000,000 and ended the year at 2,300,000?

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

A hedge fund sets its fee at 2% and a 20% carry with an 8% benchmark. What is the Net IRR to the investors if over the course of a year if AUM started at $4,000,000 and ended the year at 5,300,000?

Unlike mutual funds, hedge funds

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Efficient Diversification

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters

The risk profile of hedge funds , making performance evaluation .

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