Question 1

Alfred Jones' original strategy was to:

Accepted Answer

A) identify strong and weak stocks, buy strong ones, short the weak ones, and use leverage to enhance the returns. 
B) buy only weak stocks and hold them long. 
C) buy only strong stocks and hold them long. 
D) identify strong and weak stocks, buy weak ones, short the strong ones, and avoid leverage. 
A) identify strong and weak stocks, buy strong ones, short the weak ones, and use leverage to enhance the returns. 
B) buy only weak stocks and hold them long. 
C) buy only strong stocks and hold them long. 
D) identify strong and weak stocks, buy weak ones, short the strong ones, and avoid leverage. A

Question 2

All equity investments in nonpublic companies is referred to as:

Accepted Answer

A) core-satellite strategy. 
B) a hedge fund. 
C) private equity. 
D) None of the above 
A) core-satellite strategy. 
B) a hedge fund. 
C) private equity. 
D) None of the above C

Question 3

A corporate venture capital fund is:

Accepted Answer

A) a fund operated by private investors. 
B) a fund operated by a corporation. 
C) a fund operated for a non-profit. 
D) None of the above 
A) a fund operated by private investors. 
B) a fund operated by a corporation. 
C) a fund operated for a non-profit. 
D) None of the above B

Question 4

Any change in the value of a company due to an event can create an opportunity to profit. What fund takes advantage of this fact?

Accepted Answer

A) Event-driven fund 
B) No-bias fund 
C) Long/short equity fund 
D) Distressed fund 
A) Event-driven fund 
B) No-bias fund 
C) Long/short equity fund 
D) Distressed fund

Question 5

Hedge fund managers today construct a portfolio with a beta that:

Accepted Answer

A) is lower in rising markets and a higher in falling markets. 
B) is higher in rising markets and lower in falling markets. 
C) is market neutral. 
D) is not relevant. 
A) is lower in rising markets and a higher in falling markets. 
B) is higher in rising markets and lower in falling markets. 
C) is market neutral. 
D) is not relevant.

Question 6

The first hedge fund used a strategy to:

Accepted Answer

A) hedge against a rising market. 
B) hedge against a falling market. 
C) speculate on a rising market. 
D) speculate on a falling market. 
A) hedge against a rising market. 
B) hedge against a falling market. 
C) speculate on a rising market. 
D) speculate on a falling market.

Question 7

The risk/return trade-off with hedge funds over time has been:

Accepted Answer

A) negative. 
B) positive. 
C) neutral. 
D) undetermineD. 
A) negative. 
B) positive. 
C) neutral. 
D) undetermineD.

Question 8

A follow-on fund is:

Accepted Answer

A) a fund which follows new emerging ventures. 
B) an existing fund that is raising another fund. 
C) a very risky hedge fund. 
D) a special type of CD. 
A) a fund which follows new emerging ventures. 
B) an existing fund that is raising another fund. 
C) a very risky hedge fund. 
D) a special type of CD.

Question 9

Market neutral funds are:

Accepted Answer

A) neither long nor short in their strategy. 
B) only long in their strategy. 
C) only short in their strategy. 
D) follow a 45° Market Line. 
A) neither long nor short in their strategy. 
B) only long in their strategy. 
C) only short in their strategy. 
D) follow a 45° Market Line.

Question 10

Why do alternative investments make sense for institutional investors?

Accepted Answer

A) They reduce the rate of return and increase the standard deviation of the portfolio 
B) They increase the rate of return and reduce the standard deviation of the portfolio 
C) They reduce the rate of return and reduce the standard deviation of the portfolio 
D) They increase the rate of return and increase the standard deviation of the portfolio 
A) They reduce the rate of return and increase the standard deviation of the portfolio 
B) They increase the rate of return and reduce the standard deviation of the portfolio 
C) They reduce the rate of return and reduce the standard deviation of the portfolio 
D) They increase the rate of return and increase the standard deviation of the portfolio

Question 11

Hedge funds:

Accepted Answer

A) are open about their trading strategies. 
B) are secretive about their strategies. 
C) trade using only one brokerage. 
D) None of the above 
A) are open about their trading strategies. 
B) are secretive about their strategies. 
C) trade using only one brokerage. 
D) None of the above

Question 12

Hedge funds are:

Accepted Answer

A) regulated by the SEC. 
B) private limited partnerships. 
C) unregulated by the SEC. 
D) Both B and C 
A) regulated by the SEC. 
B) private limited partnerships. 
C) unregulated by the SEC. 
D) Both B and C

Question 13

Merger arbitrage funds:

Accepted Answer

A) make their money investing in only foreign funds. 
B) make their money betting on the long position of utility stocks. 
C) make no money, only hold long portfolios. 
D) make their money betting on the completion or failure of the merger. 
A) make their money investing in only foreign funds. 
B) make their money betting on the long position of utility stocks. 
C) make no money, only hold long portfolios. 
D) make their money betting on the completion or failure of the merger.

Question 14

A strategy that buys a convertible security for the income and then sells the common stock short is called:

Accepted Answer

A) convertible arbitrage. 
B) no-bias arbitrage. 
C) long/short bias. 
D) merger arbitrage. 
A) convertible arbitrage. 
B) no-bias arbitrage. 
C) long/short bias. 
D) merger arbitrage.

Question 15

A fund that always has a negative bias and can be 100% short or a blend of short and long is:

Accepted Answer

A) a no-bias fund. 
B) an event-driven fund. 
C) a short-bias fund. 
D) a long-bias funD. 
A) a no-bias fund. 
B) an event-driven fund. 
C) a short-bias fund. 
D) a long-bias funD.

Question 16

One exit strategy for venture capitalists is:

Accepted Answer

A) to pull their money out when the company first makes a profit. 
B) the company goes public. 
C) to stop funding the venture. 
D) None of the above 
A) to pull their money out when the company first makes a profit. 
B) the company goes public. 
C) to stop funding the venture. 
D) None of the above

Question 17

What are buy-out funds?

Accepted Answer

A) A hedge fund that buys out overstocked inventory 
B) A fund that purchases existing public companies or a division of a public company that needs to be restructured 
C) A fund which holds only money market securities 
D) None of the above 
A) A hedge fund that buys out overstocked inventory 
B) A fund that purchases existing public companies or a division of a public company that needs to be restructured 
C) A fund which holds only money market securities 
D) None of the above

Question 18

The hurdle rate is:

Accepted Answer

A) the rate of money expenditure in a new venture. 
B) the rate charged to the most credit-worthy investors. 
C) the rate paid to the investors before the general partners' cut. 
D) the rate of interest charged on the borrowing firm by the venture capitalists. 
A) the rate of money expenditure in a new venture. 
B) the rate charged to the most credit-worthy investors. 
C) the rate paid to the investors before the general partners' cut. 
D) the rate of interest charged on the borrowing firm by the venture capitalists.

Question 19

What is characteristic of late-stage companies?

Accepted Answer

A) They are near bankruptcy 
B) They are late to bring products to the market 
C) They are producing and shipping goods and are often two or three years away from an initial public offering 
D) They are highly risky, and the failure rate for venture capital investors is quite high 
A) They are near bankruptcy 
B) They are late to bring products to the market 
C) They are producing and shipping goods and are often two or three years away from an initial public offering 
D) They are highly risky, and the failure rate for venture capital investors is quite high

Question 20

The most common categories of private equity are:

Accepted Answer

A) collectibles. 
B) venture capital, leveraged buyouts, and mezzanine debt. 
C) money markets. 
D) None of the above 
A) collectibles. 
B) venture capital, leveraged buyouts, and mezzanine debt. 
C) money markets. 
D) None of the above

Exam 21: Alternative Investments: Private Equity and Hedge Funds

Alfred Jones' original strategy was to:

All equity investments in nonpublic companies is referred to as:

A corporate venture capital fund is:

Any change in the value of a company due to an event can create an opportunity to profit. What fund takes advantage of this fact?

Hedge fund managers today construct a portfolio with a beta that:

The first hedge fund used a strategy to:

The risk/return trade-off with hedge funds over time has been:

A follow-on fund is:

Market neutral funds are:

Why do alternative investments make sense for institutional investors?

Hedge funds:

Hedge funds are:

Merger arbitrage funds:

A strategy that buys a convertible security for the income and then sells the common stock short is called:

A fund that always has a negative bias and can be 100% short or a blend of short and long is:

One exit strategy for venture capitalists is:

What are buy-out funds?

The hurdle rate is:

What is characteristic of late-stage companies?

The most common categories of private equity are:

The Investment Setting

Security Markets

Participating in the Market

Investment Companies: Mutual Funds, Exchange-Traded Funds, Closed-End Funds, and Unit Investment Trusts

Economic Activity

Industry Analysis

Valuation of the Individual Firm

Financial Statement Analysis

Efficient Markets and Anomalies

Behavioral Finance and Technical Analysis

Bond and Fixed-Income Fundamentals

Principles of Bond Valuation and Investment

Convertible Securities and Warrants

Put and Call Options

Commodities and Financial Futures

Stock Index Futures and Options

A Basic Look at Portfolio Management and Capital Market Theory

Duration and Bond Portfolio Management

International Securities Markets

Investments in Real Assets

Measuring Risks and Returns of Portfolio Managers

A Comprehensive Analysis for Real Estate Investment Decisions

The Makeup of Institutional Investors

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