Exam 20: Hedge Funds

A hedge fund has $150 million in assets at the beginning of the year and 10 million shares outstanding throughout the year.Throughout the year assets grow at 12%.The fund charges 3% management fee on assets.The fee is imposed on year end asset values.What is the end of year NAV for the fund?

A one-year oil futures contract is selling for $74.50. Spot oil prices are $68 and the one year risk free rate is 3.25%. -The arbitrage profit implied by these prices is _____________.

You believe that the spread between the September S&P 500 future and S&P 500 index is too large and will soon correct.This is an example of ______________.

Unlike market-neutral hedge funds which have betas near ________,directional long funds exhibit highly _______ betas.

Hedge funds report average returns in December that are higher than their average returns in other months.This phenomenon __________. I.is called the Santa effect II.often results from over generous valuation of illiquid assets III.appears stronger for lower-liquidity funds IV.can be explained by managers' attempts to inflate assets to collect higher performance bonuses

A restriction where investors cannot withdraw their funds for as long as several months or years is called __________.

Some argue that abnormally high returns of hedge funds are tainted by __________,which arises when unsuccessful funds cease operations leaving only successful ones.

Assume the risk-free interest rate is 10% and is equal to fund's benchmark, the portfolio net asset value is $100, and the fund's standard deviation is 20%. Also assume time horizon of 1 year. -Assuming 2% management fee,what is the expected management compensation per share if the fund net asset value exceeds the stated benchmark?

Higher returns of equity hedge funds as compared to the S&P 500 index reflect positive compensation for __________ risk.

When a short-selling hedge fund advertises in a prospectus that it is a 120/20 fund,it means that this fund may sell short up to ______ every $100 in net assets and increase the long position to __________ of net assets.

Hedge fund managers receive incentive bonuses when they increase portfolio assets beyond a stipulated benchmark but lose nothing when they fail to perform.This equivalent to __________.

Market neutral hedge funds may experience considerable volatility.The source of volatile returns is the use of _________.

Hedging this portfolio by selling S&P 500 futures contracts is an example of ___________.

You manage $15 million hedge fund portfolio with beta = 1.2 and alpha = 2% per quarter. Assume the risk free rate 2% per quarter and the current value of the S&P 500 index = 1200. You want to exploit positive alpha but you are afraid are afraid that the stock market may fall and want to hedge your portfolio by selling the 3-month S&P 500 future contracts. The S&P contract multiplier is $250. -How many S&P 500 contracts do you need to sell to hedge your portfolio?

Consider a hedge fund with $200 million at the start of the year. The benchmark S&P 500 index was up 16.5% during the same period. The gross return on assets is 21% and the expense ratio is 2%. For each 1% above the benchmark return the fund managers receive 0.1% incentive bonus. -What was the annual return on this fund?

Which of the following investment style could be the best description of the Long Term Capital Management market neutral strategies?

How much is the portfolio expected to be worth 3 months from now?

You manage $15 million hedge fund portfolio with beta = 1.2 and alpha = 2% per quarter. Assume the risk free rate 2% per quarter and the current value of the S&P 500 index = 1200. You want to exploit positive alpha but you are afraid are afraid that the stock market may fall and want to hedge your portfolio by selling the 3-month S&P 500 future contracts. The S&P contract multiplier is $250. -When you hedge your stock portfolio with futures contracts the value of your portfolio beta is __________.

______ are private partnerships of small number of wealthy investors who are organized as private partnerships,often subject to lock-up period,and allowed to pursue a wide range of investment activities.

As of late 2008,hedge funds had approximately _____ under management.