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26、A typical distressed security investment strategy would involve purchasing:

A) the debt of a distressed company, allowing the company to utilize the infusion of capital to avoid bankruptcy.

B) a controlling equity position in a company experiencing financial difficulties and replacing management with a team of turnaround specialists.

C) the debt of a struggling company, with the goal of ending up with an equity position in the reorganized company.

D) an equity position in order to dilute the position of the company’s creditors.

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The correct answer is C

A typical strategy is to invest in the debt of a company, continue to hold the position throughout the bankruptcy negotiations, and ultimately end up with equity in the new, revitalized operation.

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27、The securities of companies that are either close to bankruptcy or have already filed for bankruptcy protection are called:

A) inactively traded securities.

B) illiquid securities.

C) discount securities.

D) distressed securities.

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The correct answer is D

Inactively traded securities are infrequently traded, but the name “inactively traded” does not imply anything about the financial condition of the company. “Illiquid” and “discount” are descriptions that may be applied to any of number of investment vehicles available. Distressed securities are the securities of companies in the midst of financial difficulties.

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28、What is the most common maturity range associated with private placement convertibles negotiated as part of a Regulation D strategy?

A) 3 – 6 months.

B) 30 – 90 months.

C) 18 – 60 months.

D) 30 – 90 days.

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The correct answer is C

Regulation D investments are made possible through an SEC registration exemption as part of the U.S. Securities Act of 1933. The most common maturity range of privately placed convertible bonds negotiated as part of a Regulation D strategy is 1.5 to 5 years, or, equivalently, 18 to 60 months.

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29、Global macro hedge fund strategies generally have significant exposures to:

I.           Credit risk.

II.         Liquidity risk.

III.        Term structure risk.

IV.      Foreign exchange risk.

A) III and IV only.

B) I, II, and IV only.

C) I, III, and IV only.

D) I, II, III, and IV.

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The correct answer is A

Global macro strategies bear systematic risk exposure to term structure risk and foreign exchange risk. They generally do not have significant exposure to credit or liquidity risk.

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30、Which of the following statements regarding various hedge fund strategies least accurately reflects a source of return for the strategy?

A) Equity long/short strategies earn returns from their exposure to systematic risk factors related to value and small-cap stocks.

B) Volatility arbitrage strategies earn returns from mispricings on fixed-income options resulting in accurate implied volatility estimates.

C) Regulation D strategies earn returns from their exposure to unsystematic risk factors related to credit and liquidity risk resulting from private placement.

D) Event-driven strategies earn returns from their exposure to unsystematic risk factors such as an expected merger or the expected outcome of a lawsuit.

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The correct answer is C

Regulation D strategies are exposed systematic risk factors related to credit risk and liquidity risk. These risks arise as a result of the lower credit quality of private convertible debt issuers and the fact that private convertible debt securities are not tradable in the public market for some time after the issuance.