Exam 20: Hedge Funds

Research by Aragon (2007)indicates that lock up restrictions on redemptions and positive serial correlations of returns indicate that hedge funds often face __________ problems.

Management fees for hedge funds,typically range between _____ and _____.

An example of a neutral pure play is _______.

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 management cost for the year?

Which of the following typically employ significant amounts of leverage? I.Hedge funds II.Equity mutual funds III.Money market funds IV.Income mutual funds

Assume that you have invested $500,000 to purchase shares in a hedge fund reporting $800 million in assets, $100 million in liabilities, and 70 million shares outstanding. Your initial lockout period is 3 years. -Which of the following are not managed investment companies?

You pay $216,000 to the Capital Hedge Fund which has a price of $18.00 per share at the beginning of the year.The fund deducted a front-end commission of 4%.The securities in the fund increased in value by 15% during the year.The fund's expense ratio is 2% and is deducted from year end asset values.What is your rate of return on the fund if you sell your shares at the end of the year?

Portfolio A has a beta of 1.3 and an expected return of 21%.Portfolio B has a beta of 0.7 and an expected return of 17%.The risk-free rate of return is 9%.If a hedge fund manager wants to take advantage of an arbitrage opportunity,she should take a short position in portfolio __________ and a long position in portfolio __________.

Malkiel and Saha(2005)estimate that the survivorship bias for hedge funds equals 4.4%,which is __________ than the survivorship bias for mutual funds.

Convertible arbitrage hedge funds _________.

Hedge funds that change strategies and types of securities invested and also vary the proportions of assets and invested in particular market sectors according to the fund manager's outlook are called ____________________.

A __________ is a private investment pool open only to wealthy or institutional investors that is exempt from SEC regulation and can therefore pursue more speculative policies than mutual funds.

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%. -Based on the above data,which of the following set of transactions will yield positive riskless arbitrage profits?

Assume that you have invested $500,000 to purchase shares in a hedge fund reporting $800 million in assets, $100 million in liabilities, and 70 million shares outstanding. Your initial lockout period is 3 years. -How many shares did you purchase?

You believe that the spread between the September S&P 500 future and S&P 500 index is too large and will soon correct.To take advantage of this mispricing a hedge fund should ______________.

Assume that you have invested $500,000 to purchase shares in a hedge fund reporting $800 million in assets, $100 million in liabilities, and 70 million shares outstanding. Your initial lockout period is 3 years. -What is your annualized return over the 3-year holding period?

If the risk-free interest rate is r_f and equals the fund's benchmark,the portfolio net asset value is S₀,and a hedge fund manager incentive fee is 20% of profit beyond that,the incentive fee is equivalent to receiving ______ call(s)with exercise price ________.

The collapse of the Long Term Capital Management hedge fund in 1998 was a case of an extreme unlikely statistical event called ________.

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. -What is the exercise price on the incentive fee?

Assume that you have invested $500,000 to purchase shares in a hedge fund reporting $800 million in assets, $100 million in liabilities, and 70 million shares outstanding. Your initial lockout period is 3 years. -If the share price after 3 years increases to $15.28,what is the value of your investment?