Question 1

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 above 
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 above

Question 2

Assume that you manage a $2 million portfolio that pays no dividends,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 1500.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 11 
A) selling 1 
B) selling 7 
C) buying 1 
D) buying 7 
E) selling 11

Question 3

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

Accepted Answer

A) directional 
B) nondirectional 
C) stock or bond 
D) arbitrage or speculation 
E) none of the above 
A) directional 
B) nondirectional 
C) stock or bond 
D) arbitrage or speculation 
E) none of the above

Question 4

Statistical arbitrage is a version of 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 5

Assume that you manage a $1.3 million portfolio that pays no dividends,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 1220.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 6

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; extensive 
E) none of the above 
A) limited liability partnerships; minimal 
B) limited liability partnerships; extensive 
C) investment trusts; minimal 
D) investment trusts; extensive 
E) none of the above

Question 7

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

Accepted Answer

A) directional 
B) non-directional 
C) stock or bond 
D) arbitrage or speculation 
E) none of the above 
A) directional 
B) non-directional 
C) stock or bond 
D) arbitrage or speculation 
E) none of the above

Question 8

Pairs trading is associated with ________.

Accepted Answer

A) triangular arbitrage 
B) statistical arbitrage 
C) data mining 
D) A and C 
E) B and C 
A) triangular arbitrage 
B) statistical arbitrage 
C) data mining 
D) A and C 
E) B and C

Question 9

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

Accepted Answer

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

Question 10

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

The risk profile of hedge funds ,making performance evaluation .

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

Statistical arbitrage is a version of a ______ strategy.

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

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

Pairs trading is associated with ________.

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

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

The Investment Environment

Asset Classes and Financial Instruments

How Securities are Traded

Mutual Funds and Other Investment Companies

Introduction to Risk,return,and the Historical Record

Risk Aversion and Capital Allocation to Risky Assets

Optimal Risky Portfolios

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

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, swaps, and Risk Management

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Portfolio Performance Evaluation

International Diversification

The Theory of Active Portfolio Management

Investment Policy and the Framework of the CFA Institute Appendices

Filters

Exam 26: Hedge Funds

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

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

Statistical arbitrage is a version of a ______ strategy.

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

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

Pairs trading is associated with ________.

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

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

The Investment Environment

Asset Classes and Financial Instruments

How Securities are Traded

Mutual Funds and Other Investment Companies

Introduction to Risk,return,and the Historical Record

Risk Aversion and Capital Allocation to Risky Assets

Optimal Risky Portfolios

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

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, swaps, and Risk Management

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Portfolio Performance Evaluation

International Diversification

The Theory of Active Portfolio Management

Investment Policy and the Framework of the CFA Institute Appendices

Filters

The risk profile of hedge funds ,making performance evaluation .

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