wanganjie

 

3、The fee structure of a hedge fund may lead to biases in performance data because:

A) hedge fund managers are not required to disclose information regarding fee structures.

B) hedge fund managers charge higher fees than managers of traditional funds.

C) fund managers have incentives to take big risks if past performance has been poor.

D) fund manager compensation can vary widely from year to year.

wanganjie

 

The correct answer is C

Hedge fund managers would report performance net of fees if at all. Hedge fund managers have the potential to earn more than managers of traditional funds, but this does not bias performance data. Hedge fund managers typically receive a modest base fee (1%) and then a large incentive fee based upon performance. If past performance has been poor, then fund managers feel they have “nothing to lose” and may invest more aggressively.

wanganjie

 

4、With respect to requiring a 30-day notice and only being able to make withdrawals on only specific days per year, which of the following is/are usual restrictions on hedge funds?

A) Being able to make withdrawals on only specific days per year. 

B) Both requiring a 30-day notice and being able to make withdrawals on only specific days per year. 

C) Requiring a 30-day notice only. 

D) Neither requiring a 30-day notice nor being able to make withdrawals on only specific days per year. 

wanganjie

 

The correct answer is B

Both are usual restrictions.

wanganjie

 

5、As a percent of the money invested in hedge funds, funds-of-funds account for:

A) well over half, but not near 100%. 

B) about 100%. 

C) about 30%. 

D) a negligible amount that is near zero. 

wanganjie

 

The correct answer is C

This is the number studies have found.

wanganjie

 

6、With respect to cash drag and complying with SEC regulations, hedge funds make restrictions on withdrawing money:

A) to avoid cash drag but not to comply with SEC regulations. 

B) to avoid cash drag and to comply with SEC regulations. 

C) to comply with SEC regulations but not to avoid cash drag.

D) for neither reason. 

wanganjie

 

The correct answer is A

Without restrictions on withdrawals, funds would have to have cash available to meet the demand for withdrawals. Cash has a lower return than other investments. The SEC does not have restrictions on withdrawals.

wanganjie

 

7、With respect to the diversification that hedge funds can provide in a larger portfolio, it has been found that hedge funds have:

A) not provided much diversification in the past, and their effectiveness will probably decline in the future.

B) provided diversification in the past, and their effectiveness will probably increase in the future.

C) provided diversification in the past, but their effectiveness will probably decline in the future.

D) not provided much diversification in the past, but their effectiveness will probably increase in the future.

wanganjie

 

The correct answer is C

As hedge funds become more institutionalized, their correlation with the market will increase.