标题: Alternative Investments【Reading 66】Sample [打印本页]
作者: kim226 时间: 2012-4-1 13:15 标题: [2012 L1] Alternative Investments【Session 18 - Reading 66】Sample
The per-share value of an investment company’s assets minus its liabilities is called the:
The net asset value (NAV) of an investment company is calculated as assets minus liabilities, stated on a per-share basis.
作者: kim226 时间: 2012-4-1 13:17
For the equity shares of an open-end investment company, the share value: A)
| is determined in the secondary market. |
|
|
C)
| may or may not equal NAV. |
|
Shares of a closed-end investment company are determined in the secondary market and may or may not equal NAV. Share value of an open-end investment company always equals NAV because the investment company stands ready to redeem shares at their net asset value.
作者: kim226 时间: 2012-4-1 13:17
Both open-end and closed-end funds typically charge: A)
| an annual management fee. |
|
|
C)
| a premium to the underlying net asset value (NAV). |
|
Both types of managed funds, open-end and closed-end, typically charge an annual management fee. Open-end funds sometimes charge a front-end load or a redemption fee, but closed-end funds do not. Closed-end funds can sell at a premium (or discount) to underlying NAV, but this does not result in compensation to the fund.
作者: kim226 时间: 2012-4-1 13:17
An investment company that stands ready to redeem investor shares at market value is classified as: A)
| an open-end investment company. |
|
B)
| a closed-end investment company. |
|
C)
| a managed investment company. |
|
A closed-end investment company does not redeem investor shares; after issuance, shares trade in the secondary market. Some managed investment companies may redeem shares, but others may not. An open-end investment company always offers a redemption feature.
作者: karoliukas 时间: 2012-4-1 13:19
The net asset value (NAV) of an open-end fund is determined by the: A)
| book value of all assets divided by the number of shares outstanding. |
|
B)
| market value of assets minus liabilities divided by the number of shares outstanding. |
|
C)
| supply and demand for the shares in the investment management company. |
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This is the equation for the calculation of NAV.
作者: karoliukas 时间: 2012-4-1 13:19
You are going to invest in a closed-end mutual fund and are told that the net asset value of the fund is $20.40, and the share price is $18.20. What is the discount you would receive or the premium that you would pay?
| 18.20 − 20.40 | = -0.1078 |
| 20.40 |
作者: karoliukas 时间: 2012-4-1 13:20
Which of the following statements about investment companies is least accurate? A)
| The investment company's board of directors hires an investment management company to select securities, manage the portfolio, and handle administrative duties. |
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B)
| Investment companies are generally wholly owned subsidiaries of the investment advisory firm that creates them. |
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C)
| Generally the investment advisory firm initiating the fund will also act as the fund's investment management company. |
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Investment companies are owned by individual investors. For example, individuals who purchase shares in a mutual fund are the "owners" of that fund.
作者: karoliukas 时间: 2012-4-1 13:20
Jillian Best is choosing between two mutual funds. Fund A has a front-end load of 4%, a net asset value (NAV) of $60.00, and an expected return of 13.0%. Fund B has a redemption fee of 1.5%, a NAV of $27, and an expected return of 10%. Jillian will invest $50,000 in either fund. Which of the following statements is most accurate if Jillian has a 6-month holding period? The:A)
| investor is better off with the front-end load fund by $120.00. |
|
B)
| investor is better off with the redemption fee fund by $592.50. |
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C)
| investor is better off with the redemption fee fund by $712.50. |
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| Front end load fund: | $50,000 (1 – 0.04)(1.065) | = $51,120.00 |
| Redemption fee fund: | $50,000 (1.05)(1 – 0.015) | = $51,712.50 |
| Redemption fee fund advantage | | $
592.50 |
作者: karoliukas 时间: 2012-4-1 13:20
The net asset value of a closed-end mutual fund is $11.20, and the share price is $10.00. The discount or premium is closest to:
(SP - NAV) / NAV =
(10.00 - 11.20) / 11.20 = −0.107
作者: karoliukas 时间: 2012-4-1 13:21
Bill Lynch, CFA, is a branch manager for a brokerage firm. He is reviewing a set of slides for a sales presentation that one of his subordinates will deliver next week. In a section that explains the nature of the various fees charged by investment companies, Lynch finds slides that state the following:
Slide 8: Fees charged by investment companies are a trade-off from the investor’s point of view. Lower fees will subtract less from the investor’s rate of return, but higher fees give portfolio managers greater incentives to achieve higher returns.
Slide 12: When choosing between a fund’s share classes, the investor should select the class with the lowest total annual fees.
Should Lynch agree or disagree with the statements on these two slides?
Lynch should disagree with both of these statements. Premiums, loads, and redemption fees are compensation for sales and marketing efforts, but they are not performance incentives for the portfolio managers. Different classes of shares can be structured with different schedules of front-end, back-end, and distribution fees. The optimal choice depends on the investor’s expected holding period and is not necessarily the one with the lowest total annual fees.
作者: karoliukas 时间: 2012-4-1 13:21
A sales commission charged by an investment company at the time of redemption is called a:
A front-end load is a sales commission charged at purchase. A distribution fee, also called a 12b-1 fee, is an ongoing fee, charged on an annual basis as a percentage of assets, which is used to cover any marketing expenses incurred by the management company. A charge to exit a fund is called a back-end load or a redemption fee.
作者: karoliukas 时间: 2012-4-1 13:21
Based on the following information, what is the net asset value (NAV) per share. There are currently no expenses and no load.| Cap Stock Sold $109,000 |
| Price per share $10 |
| Stock | Shares | Price | Book Value |
| A | 1,051 | $10 | $5 |
| B | 2,420 | $35 | $29 |
| C | 1,851 | $9 | $8 |
| D | 900 | $69 | $63 |
| Total number of shares sold | = | $109,000 | = | 10,900 shares |
| $10 (per shares) |
| | | | |
| Total market value | = | 1,051 × 10 | = | 10,510 |
| | 2,420 × 35 | = | 84,700 |
| | 1,851 × 9 | = | 16,659 |
| | 900 × 69 | = | 62,100 |
| | | | 173,969 |
| | | | |
| NAV | = | 173,969 | = | 15.96 per share |
| 10,900 |
作者: karoliukas 时间: 2012-4-1 13:22
An investor is contemplating buying a load fund versus a no load mutual fund. She is trying to figure out the actual amount she will have to spend on the load fund. The shares have a net asset value (NAV) of $34.50 and a load of 5.2%. Determine which type of fund will always have a share price equal to the NAV and the price she will pay for the load fund.
The share price of an open-end fund will always equal the NAV, since the investment company is obligated to redeem shares at any time at current market value.
Offering price = $34.50 / (1 – 0.052) = $36.39.
作者: karoliukas 时间: 2012-4-1 13:22
A closed-end fund: A)
| has its price determined by the net asset value (NAV). |
|
B)
| has its price determined by supply and demand, regardless of its net asset value (NAV). |
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C)
| is traded in the primary market but not the secondary market. |
|
Closed-end investment companies are initiated through a stock offering to raise funds. The investment company does not issue or redeem shares after the initial offering. Shares of a closed-end investment company are traded in public markets and are priced by supply and demand. The share price of a closed-end fund is not directly linked to the fund’s NAV. The NAV is the prevailing market value of all the shares and assets owned by the fund. Many closed-end funds sell at a discount of 5 to 20% from their NAV.
作者: karoliukas 时间: 2012-4-1 13:22
Open-end investment companies: A)
| can continue to sell and repurchase shares after their initial public offerings. |
|
B)
| must register a maximum number of shares with the Securities and Exchange Commission (SEC). |
|
C)
| must redeem shares at the net asset value with no fees included. |
|
The primary difference between open-end and closed-end funds is that open-end funds continue to sell and repurchase shares after their initial public offerings. Open-end investment companies can be load or no-load.
作者: karoliukas 时间: 2012-4-1 13:23
Which statement about mutual funds is most accurate? A)
| The liquidity of an open-end fund is provided by the open market. |
|
B)
| The redemption fee for a closed-end fund is the commission charged on the sale and a portion of the bid/ask spread of the shares. |
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C)
| Some open-end funds charge no fees. |
|
Since closed-end funds are traded in the secondary market for a price determined by supply and demand for shares, the spread along with the sales commission represent the redemption fee. All funds charge fees, although the fees vary widely from fund to fund. In addition, some funds charge a load in addition to fees. The liquidity of an open-end fund is provided by the company that manages it, not the open market.
作者: karoliukas 时间: 2012-4-1 13:23
Which statement is the least accurate analysis of a mutual fund equity investment strategy? A)
| Stable value funds invest in long-term fixed-income securities with regular cash flows and a steady interest rate. |
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B)
| Sector funds may set performance targets drastically different than the overall market’s expected returns. |
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C)
| Global funds managed by U.S. investment companies often contain U.S. stocks. |
|
Stable value funds seek both timely principal payments and steady interest rates, but tend to invest in short-term securities with regular principal payments. Global funds frequently contain stocks from the investment manager’s home country. Index funds are designed to track a certain index, and fees are typically lower than those of actively managed funds. Because different industry sectors have different growth characteristics, some sector funds’ targets will of necessity diverge from the broader market.
作者: karoliukas 时间: 2012-4-1 13:23
The Big Fund is a mutual fund that invests primarily in the equity of pharmaceutical companies. The investment style of the Big Fund can best be classified as a:
A large-cap strategy focuses on the equities of companies with large capitalization. Both large cap and growth are examples of style strategies, which look for investments with common underlying characteristics. A sector strategy invests in one, defined industry.
作者: karoliukas 时间: 2012-4-1 13:24
Growth, value, large-cap, and small-cap investing are all examples of: A)
| style investment strategies. |
|
B)
| sector investment strategies. |
|
C)
| index investment strategies. |
|
A sector strategy invests in the stocks of a particular industry. An index strategy models the portfolio to mimic the benchmark index. A style strategy looks for investments with common underlying characteristics.
作者: karoliukas 时间: 2012-4-1 13:24
A portfolio that pursues a stable-value investment strategy would most likely invest in: |
B)
| short-term Treasuries. |
|
|
Investing in low P/E stocks is a value strategy. Buying high P/E stocks is a growth strategy. A stable-value fund would be most likely to invest in short-term, fixed-income securities.
作者: karoliukas 时间: 2012-4-1 13:24
A primary advantage of the in-kind redemption process of exchange traded funds (ETFs) is that it: A)
| provides greater liquidity for shares of the ETF. |
|
B)
| reduces transaction costs for the investor. |
|
C)
| reduces tax liability. |
|
ETFs are typically cost-effective for the investor because they are passively managed and therefore have lower management fees than actively managed portfolios. The in-kind process has no effect on the liquidity of the ETF shares. The in-kind process does reduce asset turnover, because shares do not have to be sold in order to satisfy the redemption of shares.
作者: karoliukas 时间: 2012-4-1 13:25
Which of the following risks are specific to exchange traded funds (ETFs) that are allowed to purchase derivatives?
All ETFs are subject to market risk just like any other diversified portfolio. Tracking error risk is always present in an index fund. Only those ETFs that utilize a derivatives strategy will be subject to credit risk.
作者: karoliukas 时间: 2012-4-1 13:25
Which of the following is least likely an advantage of exchange traded funds (ETFs) over traditional mutual funds? A)
| ETF shares have smaller bid-ask spreads than open-end mutual funds. |
|
B)
| The structure of ETFs prevents share prices from trading at a significant premium/discount to net asset value (NAV). |
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C)
| ETF shares trade throughout the day at continuously updated prices, while open-end funds trade only once a day at close-of-market prices. |
|
ETF shares do trade continuously throughout the day, unlike shares of open-end funds. Investors in ETFs do have lower capital gains liabilities than investors in open-end funds because of ETF’s in-kind redemption feature. Because of the in-kind creation/redemption process of ETFs, new shares will be issued or redeemed in accordance with investor demand, thus eliminating any significant discount or premium. Because ETF shares trade on the open market, the shares are subject to a bid-ask spread, while open-end funds trade at NAV and are not subject to a bid-ask spread.
作者: karoliukas 时间: 2012-4-1 13:26
Which statement about the advantages and disadvantages of exchange-traded funds (ETFs) is least accurate? A)
| ETFs represent an attractive diversification tool, but investors cannot check their composition daily. |
|
B)
| Most ETFs have low fees, but some may cost more to trade because of high bid/ask spreads. |
|
C)
| ETFs offer less capital-gains tax liability than open-end funds. |
|
ETFs are a useful diversification tool, and investors can check their composition at any time. ETFs generally charge low fees, but some with low trading volume may be costly to trade. ETFs incur less tax liability than open-end funds.
作者: karoliukas 时间: 2012-4-1 13:26
Demand for real estate is a function of all of the following factors EXCEPT? A)
| Population characteristics of the community. |
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B)
| Competitive properties. |
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C)
| The terms and conditions of mortgage financing. |
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This is a determinant of the supply of real estate property. Both remaining choices are determinants of demand.
作者: karoliukas 时间: 2012-4-1 13:26
Which of the following is least likely to be a form of real estate investment? |
|
C)
| Leveraged equity position. |
|
Property insurance is not considered a category of real estate investment because the underlying real estate does not revert to the insurer if the property holder allows the policy to lapse. A leveraged equity position and aggregation vehicles such as real estate investment trusts are each forms of real estate investment.
作者: karoliukas 时间: 2012-4-1 13:27
Mortgages are considered to be a form of real estate investment because: A)
| the investor receives a constant stream of cash flows. |
|
B)
| if the borrower defaults on the loan, the lender may end up owning the property. |
|
C)
| the borrower will own the property at the end of the loan term. |
|
It is true that the borrower will own the property if all loan terms are met, but the question is stated in terms of the mortgage lender, not the borrower. The investor anticipates a constant stream of cash flows, similar to other fixed income investments, but is also subject to defaults as well as prepayments. If the borrower defaults on the terms of the loan, the property will revert back to the lender, and this exposure is the reason why mortgages are considered a real estate investment.
作者: karoliukas 时间: 2012-4-1 13:27
Investors can diversify their direct real estate holdings through all of the following vehicles EXCEPT:
Real estate co-operatives are generally a tool with which multiple owners can purchase shares in a single building or complex. This strategy spreads out risk among many investors but doesn’t offer much in the way of diversification for a single investor. Commingled funds and limited partnerships typically allow investors to spread their bets either geographically or through different property types.
作者: karoliukas 时间: 2012-4-1 13:27
Which of the following least likely affects a property’s investment potential? A)
| Structure of the financing mechanisms used to buy the property. |
|
B)
| The legal rights associated with the property. |
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C)
| The activity around the property, both commercial and non-commercial. |
|
The financing and investing decisions are made separately. Market value analysis does not consider how the asset will be financed.
作者: karoliukas 时间: 2012-4-1 13:27
Define the sales comparison method and the cost approach. | Sales comparison | Cost approach |
A)
| | uses the price of a similar property or properties from recent transactions to value real estate | the value of real estate is determined by the replacement cost of improvements, plus an estimate for the value of the land |
|
|
B)
| | uses the price of a similar property or properties from recent transactions to value real estate | links the value of a property to an investor's specific marginal tax rate |
|
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C)
| | uses a discounted cash flow model to estimate the present value of the future income produced by the property | links the value of a property to an investor's specific marginal tax rate |
|
|
The sales comparison method values property relative to similar properties that have been recently sold. The cost approach values a property at the cost it would be to rebuild it.
作者: karoliukas 时间: 2012-4-1 13:30
Which of the following is least likely a disadvantage of the cost approach method of estimating the market value for real estate? A)
| market value of a property may differ significantly from its construction cost. |
|
B)
| the replacement cost of existing improvements may be difficult to determine. |
|
C)
| estimating the value of the land may be difficult. |
|
The market value may be more or less than what it would cost to rebuild or replace it. Estimating the value of the land portion of a property with improvements is a difficult process. The replacement cost is usually easy to determine, although it may or may not reflect the value of the improvements.
作者: karoliukas 时间: 2012-4-1 13:30
Consider the following descriptions of approaches used in valuing real estate:- Approach 1: This approach relies on examining recent transaction prices from a group of similar properties.
- Approach 2: This approach suggests that projects with positive expected net present value should be accepted.
- Approach 3: In this approach, an estimate for net operating income is discounted by an estimate of the market required rate of return to obtain the appraisal price.
- Approach 4: In this approach an estimate for the value of land is added to the price tag that would have to be paid if a property had to be replaced.
List in order from Approach 1 to Approach 4 the real estate valuation method that corresponds to each of the four valuation approaches listed above.A)
| The sales comparison method; the income method; the cost method and the discounted after-tax cash flow model. |
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B)
| The sales comparison method; the discounted after-tax cash flow model; the income method and the cost method. |
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C)
| The income method; the cost method; the sales comparison method and the discounted after-tax cash flow model. |
|
The approach that relies on examining recent transaction prices from a group of similar properties is the sales comparison method. The approach that suggests that projects with positive expected net present value should be accepted is the discounted after-tax cash flow model. The approach that requires an estimate for net operating income which is subsequently discounted by an estimate of the market required rate of return to obtain the appraisal price is the income method and the approach that adds an estimate for the value of land to the price tag that would have to be paid if a property had to be replaced is the cost method.
作者: karoliukas 时间: 2012-4-1 13:31
Consider the following descriptions of approaches used in valuing real estate:- Approach 1: In this approach, the present value of after-tax cash flows are calculated based on the investor’s required rate of return before the equity portion of the investment is deducted.
- Approach 2: In this approach, the value of land is estimated and is added to the price that would have to be paid if a property had to be replaced.
- Approach 3: In this approach, an appraisal price is estimated as the discounted net operating income based on the market required rate of return.
- Approach 4: This approach relies on examining recent transaction prices from a group of similar properties and depends on a reasonably liquid market.
List in order, from Approach 1 to Approach 4, the real estate valuation methods that correspond to each of the four valuation approaches listed above.A)
| The income method, the cost method, the sales comparison method, and the discounted after-tax cash flow model. |
|
B)
| The discounted after-tax cash flow model, the cost method, the income method, and the sales comparison method. |
|
C)
| The income method, the discounted after-tax cash flow model, the sales comparison method, and the cost method. |
|
The approach that suggests that the present value of after-tax cash flows be calculated based on the investor’s required rate of return before the equity portion of the investment is deducted, is the discounted after-tax cash flow model. The approach that adds an estimate for the value of land to the price tag that would have to be paid if a property had to be replaced, is the cost method. The approach that requires an estimate for net operating income (NOI) which is subsequently discounted by an estimate of the market required rate of return to obtain the appraisal price, is the income method. Finally, the approach that relies on examining recent transaction prices from a group of similar properties, is the sales comparison method. The accuracy of this method depends on there being a liquid real estate market from transactions data that can be collected.
作者: karoliukas 时间: 2012-4-1 13:31
Which of the following is least likely a characteristic of the income method for real estate valuation? A)
| Account for the effects of income taxes. |
|
B)
| Require a discounted cash flow model. |
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C)
| Ignore future changes in operating income. |
|
The income method does not consider the investment’s income-tax implications. However, it does use a discounted cash flow model based on net operating income. The income method does not account for potential changes in operating income.
作者: karoliukas 时间: 2012-4-1 13:32
Which of the following statements regarding real estate valuation is CORRECT? A)
| Each property is unique, so the investment value may be dependent upon the particular use planned for the property. |
|
B)
| The estimated market value of a property depends upon the particular investor. |
|
C)
| The most reliable real estate valuation method is the cost approach. |
|
The market value is completely independent of any considerations based upon the investor or potential investor. There is not a “most reliable” valuation method – all have their advantages and disadvantages. The investment value may be dependent upon the planned use of the property—remember that market value and investment value are two different things.
作者: karoliukas 时间: 2012-4-1 13:33
Jill Booton is evaluating an apartment building as a possible investment to add to her portfolio. She has been told that real estate is a good addition to a portfolio for diversification purposes. Jill will not be able to handle the maintenance issues at the complex and thus must hire a full-time maintenance employee at $35,000 per year. She will also hire a full-time manager at $40,000 per year. Property taxes are expected to be $75,000 per year and insurance will be another $25,000. If fully occupied, the gross rental income from the property will be $850,000. Due to the location of the building, Jill estimates a very low vacancy rate of 3.5 percent annually. The net operating income of the property is closest to:
NOI = $850,000 – ($850,000 x 0.035) – $35,000 – $40,000 – $25,000 – $75,000 = $645,250.
作者: karoliukas 时间: 2012-4-1 13:34
Based upon the following information, what is the net operating income (NOI) of the property?| Estimated Market Value | $600,000 |
| Capitalization Rate | 20% |
| Taxes | $27,000 |
| Operating Expenses | $107,000 |
MV = NOI / CAP
To solve for NOI, rewrite the formula as: MV × CAP = NOI
600,000 × 0.2 = 120,000
作者: karoliukas 时间: 2012-4-1 13:35
The income approach to valuing real estate is most similar to the following method of valuing common stock? A)
| Dividend discount model with zero growth. |
|
B)
| Dividend discount model with normal growth. |
|
|
The income approach for valuing real estate uses the following formula:
Appraised Pricereal estate = annual net operating income (NOI) / Market Capitalization Rate (R)
The dividend discount model (DMM) with zero growth approach for valuing common stock uses the following formula:
Pricecommon stock = Dividend (D) / (Required Rate of Return on the Stock (k) - Growth (g))
When g = 0, the formulas simplify to:
Appraised Pricereal estate = NOI / R
Pricecommon stock = D / k
or, a period cash flow divided by a rate of return.
The DMM with normal growth would not be a correct response because the income approach for real estate assumes a constant (no growth) NOI stream to perpetuity.
作者: karoliukas 时间: 2012-4-1 13:35
Net operating income (NOI) is calculated by subtracting which of the following from the property's gross potential rental income?
NOI does not consider income taxes, financing charges, or depreciation.
作者: karoliukas 时间: 2012-4-1 13:35
The portfolio manager of a large real estate investment trust (REIT) has identified an office building as a potential investment. Based upon the following data, what is its net operating income (NOI)?
Gross potential rental income |
$235,000 |
Estimated vacancy and collection loss rate |
6% |
Insurance and taxes |
$15,000 |
Repairs and maintenance |
$17,000 |
Utilities |
$12,500 |
Cost of equity |
11% |
The NOI is $235,000 – ($235,000 × 6%) − $15,000 − $17,000 − $12,500 = $176,400. The cost of equity number is not needed, because the NOI calculation is independent of any financing arrangements.
作者: karoliukas 时间: 2012-4-1 13:36
Johnson is considering the purchase of Happy Valley Acres, a 300-unit apartment complex. She has hired Carson, CFA, to advise her on the investment. Carson has estimated the following data for Happy Valley’s next accounting period:- Potential rental income = $3.80 million.
- Vacancy rate = 3.5%.
- Insurance costs = $250,000.
- Financing costs = $940,000.
- Property taxes = $400,000.
- Utility expense = $120,000.
- Repair costs = $200,000.
- Depreciation = $350,000.
- Required return = 8%.
The property’s net operating income (NOI) and value should be closest to:A)
| | $2.83 million | $33.75 million |
|
|
B)
| | $2.70 million | $33.75 million |
|
|
C)
| | $2.70 million | $21.60 million |
|
|
NOI = rental income × (1 − vacancy rate) − insurance costs − property taxes − utility expense − repair costs
NOI = $3.80 million × (96.5%) − 250,000 − 400,000 − 120,000 − 200,000 = 2.70 million
Value of building = 2.70 million / 0.08 = 33.75 million
作者: karoliukas 时间: 2012-4-1 13:36
An investor is considering purchasing an office building that is currently 95% leased.
Gross potential rental income | $105,000 |
Insurance and taxes | $9,000 |
Repairs and maintenance | $15,000 |
Depreciation | $11,000 |
What is the building's net operating income (NOI), based on the above table?
NOI can be calculated as gross rental income minus vacancy losses, insurance and taxes, and repairs and maintenance. Depreciation is not a factor in calculating NOI. NOI for the building is $105,000 – ($105,000 × 5%) - $9,000 - $15,000 = $75,750.
作者: karoliukas 时间: 2012-4-1 13:37
All of the following variables might be factors when calculating the net operating income (NOI) for a property EXCEPT:
Insurance expenses and collection losses for a property are all factors in the NOI calculation. Depreciation is not a factor when calculating NOI because a basic, underlying assumption is that routine repairs and maintenance will keep the property in its existing condition.
作者: karoliukas 时间: 2012-4-1 13:37
The gross rental income for an apartment building allowing for vacancies is $500,000. Estimated expenses total $200,000. If the capitalization rate is 10%, the value of this building using the direct capitalization approach is closest to:
NOI = 500,000 − 200,000 = 300,000
MV = NOI / Capitalization rate = 300,000 / 0.10 = 3,000,000
作者: Kingpin804 时间: 2012-4-1 13:39
A real estate analysis estimates the market value of an income-producing property at $2,560,000. The annual gross potential rental income is $596,000, the annual property operating expenses and taxes are $178,800, and the annual vacancy and collection losses are $89,400. What capitalization rate was used by the analysis to assess the property at $2,560,000?
| 596,000 − 178,800 − 89,400 | = | 0.128 |
| 2,560,000 |
作者: Kingpin804 时间: 2012-4-1 13:39
An investor made the following purchase:- Bought an office building for $500,000 using 90% financing.
- The borrowing cost was 10%.
- They received $29,000 at year-end from rentals.
- They sold the building for $520,000 at the end of the year.
Assuming a flat tax rate on income and capital gains of 25% what was the return on equity?
Equity = 500,000(0.10) = 50,000
Interest cost = 450,000 (0.10) = 45,000
Capital Gain = 520,000 − 500,000 = 20,000
ATCF = (Income + Capital Gain − Interest)(1 − tax rate)
ATCF = (29,000 + 20,000 − 45,000)(1 − 0.25) = $3,000
ROE = ATCF / Equity = 3,000 / 50,000 = 0.06 or 6%
作者: Kingpin804 时间: 2012-4-1 13:39
Ron Biggs is considering a real estate investment. In the first year, the property is expected to generate revenue of $65,000. The expense in the first year is $25,000 and the depreciation allowance will be 2.6 percent of the $350,000 initial investment. Assuming all cash flows occur at the end of the year and Biggs expects to be in a 35 percent marginal tax bracket, the after-tax cash flow in year 1 is closest to:
After-tax cash flow = (revenue – cost – depreciation)(1 – t) + depreciation.
Depreciation = 0.026 × $350,000 = $9,100.
CF = ($65,000 – $25,000 – $9,100)(1 – 0.35) + $9,100 = $29,185.
作者: Kingpin804 时间: 2012-4-1 13:40
A real estate speculator is considering an investment in a piece of raw land that will be developed. He expects to invest $150,000 in the land. It will not be developed for three years, but at the end of year 3, he expects a cash flow of $25,000. In years 4 and 5, the cash flow will increase to $35,000, and at the end of year 5 he expects to sell the land for $185,000. Due to the risky nature of the investment, he requires an 18% return.The net present value of this investment is closest to:
CF0 = –150,000
CF1 = 0
CF2 = 0
CF3 = 25,000
CF4 = 35,000
CF5 = (35,000 + 185,000) = 220,000
I/Y = 18; CPT → NPV = –$20,567.90
The internal rate of return (IRR) is closest to:
CF0 = –150,000
CF1 = 0
CF2 = 0
CF3 = 25,000
CF4 = 35,000
CF5 = 220,000
CPT → IRR = 14.3%.
作者: Kingpin804 时间: 2012-4-1 13:41
An investor purchases a property for $1,000,000, financing 92% of the purchase price. He plans to sell the property four years later for $1,200,000. The expected net cash flows for the investment are as follows:| Year 1 | $23,450 |
| Year 2 | $25,312 |
| Year 3 | $27,879 |
| Year 4 (net of mortgage payoff) | $261,450 |
Assuming a 9% cost of equity, the net present value (NPV) of the cash flows at the time the property is purchased is:
The present value of the cash flows is: $23,450 / 1.09 + $25,312 / 1.092 + $27,879 / 1.093 + 261,450 / 1.094 = $249,563.83. The NPV is the present value of the cash flows minus the initial investment: $249,564 – $80,000 = $169,564.
作者: Kingpin804 时间: 2012-4-1 13:41
An investor purchases an office building for $2,500,000. He puts 10 percent down and finances the remainder at a 9 percent rate of interest. Calculate the first year’s after-tax cash flow for the investment using the following information:| NOI | $243,000 |
| Depreciation | $25,000 |
| Annual mortgage payment | $218,000 |
| Marginal income tax rate | 28% |
The first year’s interest payment is the amount borrowed ($2,250,000) times the rate of interest (9%), which equals $202,500. After-tax net income, which is NOI minus depreciation minus interest, net of taxes, is ($243,000 - $25,000 - $202,500) × (1 - 0.28) = $11,160. After-tax cash flow is after-tax net income, plus depreciation and minus the principal component of the mortgage payment ($218,000-$202,500): $11,160 + $25,000 - $15,500 = $20,660.
作者: Kingpin804 时间: 2012-4-1 13:41
A real estate property has net operating income of $956,000, requires taxes of $143,400, and has a capitalization rate of 16%. The estimated property value is closest to:
Appraised Price = NOI / CAP
Appraised Price = 956,000 / 0.16 = 5,975,000
作者: Kingpin804 时间: 2012-4-1 13:42
A portfolio manager is considering the purchase of an office building. He has identified the major characteristics of a property that affect value, and has assigned a quantitative rating to each one, based upon recent comparable sales in the area. Using a regression model, he has developed benchmark values for each characteristic, which he will use to estimate the market value of the potential investment. This method of estimating property value is best described as the: A)
| hedonic price estimation. |
|
B)
| sales comparison approach. |
|
C)
| regression price model. |
|
The sales comparison approach uses recent transactions to estimate a benchmark value. The regression price model is a fictitious model. The hedonic price model is a variation of the sales comparison approach, but is a more formalized, structured approach.
作者: Kingpin804 时间: 2012-4-1 13:42
The data below pertains to an office building’s next reporting period:- Gross rental income = $6.5 million.
- Operating expense = $2.3 million.
- Financing expense = $900,000.
- Depreciation expense = $750,000.
- Vacancy rate = 8.5%.
The market expects a return of 12.3%. The value of the office building is closest to:
Net operating income (NOI) = gross rental income × (1 − vacancy rate) − operating expenses
NOI = $6.5 million × (91.5%) − $2.3 million
NOI = $3.6475 million
Value = NOI / market cap rate
Value = $3.6475 million / 12.3%
Value = $29.6545 million
作者: Kingpin804 时间: 2012-4-1 13:42
A real estate agent contacts an investor regarding a property that has recently come on the market. The real estate agent can provide reliable information regarding the property’s net operating income, as well as the prevailing market cap rate, based on recent comparable sales. The investor can best estimate the market value of the property, with the information supplied by the real estate agent, using the: A)
| discounted cash flow model. |
|
B)
| sales comparison approach. |
|
|
The sales comparison approach uses recent transactions to estimate a benchmark value. The discounted cash flow model is used as a check on investment valuation. The income approach uses a property’s NOI, divided by the market cap rate, to estimate market value.
作者: Kingpin804 时间: 2012-4-1 13:43
An investor with a large real estate portfolio must estimate the value of his holdings at year-end. Given the following data for an apartment building in the portfolio, estimate the appraised value using the income approach:
NOI | $165,000 |
Marginal tax rate | 28% |
Market cap rate | 9% |
Appraisal price = NOI / Market cap rate = $165,000 / 0.09 = $1,833,333. Remember that all calculations for the income approach are made pre-tax.
作者: Kingpin804 时间: 2012-4-1 13:43
John Williams wants to purchase an apartment complex. The complex consists of 75 units each renting for $700 per month. The estimated vacancy and collection loss rate is 7%. The insurance for the building is $40,000 annually and taxes are $22,000 annually. Utilities are $18,000 and the maintenance expense is $29,000.
Assume a market cap rate of 11%. Recent sales of nearby apartment complexes have resulted in the following information.| Characteristics | Units | Slope Coefficient in $ per Unit |
| Proximity to downtown | Miles | -350,000 |
Proximity to
public transportation | Blocks | -500 |
| Building size | Units | +75,000 |
Williams' proposed apartment complex is 4 miles away from downtown and 6 blocks away from the nearest public transportation. What is the net operating income (NOI) for Williams' proposed apartment complex?
NOI = (75)(700)(12)(0.93) – $40,000 − $22,000 − $18,000 − $29,000 = $476,900.
Using the sales comparison approach, the value of the apartment complex is:
Value = (-350,000)(4) + (-500)(6) + (75,000)(75) = 4,222,000
Using the income approach, the value of Williams' apartment complex is:
Appraisal price = NOI / market cap rate = $476,900 / 0.11 = $4,335,454.55
作者: Kingpin804 时间: 2012-4-1 13:44
A property has a gross potential rental income of $740,000. Operating expenses, excluding insurance and property taxes, amount to 30% of gross rents. Insurance and property taxes total $16,800. If the market capitalization rate is 22%, the value of this property is closest to:
Appraised Price = NOI / CAP = [(0.7 × 740,000) − 16,800] / 0.22 = 2,278,182
作者: Kingpin804 时间: 2012-4-1 13:44
Which of the following is least likely a way in which venture capitalists create value? A)
| Understanding the outside capital markets and helping start-ups acquire capital in the public debt and equity markets. |
|
B)
| Are often able to identify undervalued investments due to specialization in the venture capitalist's area of expertise. |
|
C)
| Provide contacts to accountants, lawyers, and investment bankers. |
|
Start-ups generally are not ready for the public equity markets (hence the venture capitalist) and are certainly not ready for the public debt markets. Venture capitalists provide value by not only providing money, but also contacts, guidance, advice, insight, etc.
作者: Kingpin804 时间: 2012-4-1 13:45
A venture capitalist would typically do all of the following EXCEPT: A)
| provide business expertise and confidentiality. |
|
B)
| force the entrepreneur to carefully consider the viability of the project through the development of a business plan. |
|
C)
| manage the company after it has gone public. |
|
Venture capitalists also provide risk capital.
作者: Kingpin804 时间: 2012-4-1 13:45
A manufacturing company would seek mezzanine financing in which of the following scenarios? A)
| A company already producing and selling a product, seeking an initial expansion of operations. |
|
B)
| A company ready for a major marketing campaign. |
|
C)
| A company preparing for an initial public offering. |
|
All of the above scenarios are different stages of later-stage financing. A company ready for a major marketing campaign or a physical plant expansion is seeking third-stage financing. An initial expansion of operations describes second-stage financing. The capital provided to prepare for an initial public offering is at the mezzanine stage.
作者: Kingpin804 时间: 2012-4-1 13:45
The founders of the ABCD Corporation believe their idea for a new weight-loss pill will be tremendously successful. ABCD Corporation is currently seeking venture capitalists to invest in their company so they can do further research and hopefully someday develop their idea into a marketable product. This stage of venture capital investing can best be described as:
First-stage financing is used to begin manufacturing and sales of a product. Formative-stage financing includes the seed-stage and the early-stage, but is too broad of a description for this situation. Seed-stage best describes this scenario, because ABCD is seeking financing to support product development and market research.
Note: there is some overlap between the stages, so read the question carefully.
作者: Kingpin804 时间: 2012-4-1 13:46
The different stages of venture capital investing are generally grouped according to the: A)
| rights and responsibilities of the investor. |
|
B)
| stage of development of the venture. |
|
C)
| liquidity of the investment. |
|
The stages of venture capital investment are categorized according to the point the venture is in the business cycle.
作者: Kingpin804 时间: 2012-4-1 13:46
Venture-capital investing will appeal to investors who: A)
| are willing to accept a high-risk profile and illiquidity. |
|
B)
| have a short time horizon. |
|
C)
| make investment decisions based on historical risk and return data. |
|
Venture capital investments are characterized by illiquidity and a high-risk profile. Venture capital is a long-term investment not suitable for investors with short time horizons. There is little historical data available for venture-capital investments, so investors who depend on such data to make decisions are not likely to invest in this arena.
作者: Kingpin804 时间: 2012-4-1 13:46
Which of the following is NOT among the three most important factors in valuing a venture capital investment? |
|
C)
| Expected payoff at exit. |
|
Illiquidity is a characteristic common to all venture capital investments, but is difficult to quantify valuing an investment. The timing and amount of the expected payoff at exit, adjusted for the probability of failure, are the three most important factors in the valuation of venture capital opportunities.
作者: Kingpin804 时间: 2012-4-1 13:47
Which of the following statements regarding venture capital investing is NOT correct? A)
| The success of venture capital projects is dependent upon market entrance and exit strategies. |
|
B)
| Valuation of venture capital projects is difficult due to the unique qualities of each project. |
|
C)
| Investors in venture capital projects typically require a short-term investment horizon. |
|
Valuation of venture capital investments is difficult because of the uniqueness of each project in addition to a lack of historical risk and return data. Venture capital investors generally do not know what other competing projects or ideas may hamper their success. Market entrance and exit strategies are critical to the success of a venture capital project. Venture capital investors know upfront they are investing in an illiquid asset with a long time horizon.
作者: Kingpin804 时间: 2012-4-1 13:47
A portfolio manager is analyzing a $2,000,000 venture capital investment. If the project succeeds until the end of the sixth year, the net present value (NPV) of the project is $6,587,000. The project has a 32.69 percent probability of surviving to the end of the sixth year. The expected NPV of the project is:
The project’s expected NPV is a probability-weighted average of the two possible outcomes: $6,587,000 if it is successful or the loss of the initial $2,000,000 investment if it fails. The expected NPV for the project is: (0.3269 × 6,587,000) + (0.6731 × -$2,000,000) = $807,090
作者: Kingpin804 时间: 2012-4-1 13:48
Which of the following statements regarding venture capital theory is CORRECT? A)
| The probability of failure for a venture capital project will diminish over time. |
|
B)
| The net present value of a venture capital project that fails is zero. |
|
C)
| A venture capital project’s expected NPV is a probability-weighted average of the two possible outcomes: success and failure. |
|
The net present value of a venture capital project that fails is almost certainly less than zero. The probability of failure may or may not diminish over time, depending on the project. The expected NPV is a probability-weighted average of the two possible outcomes: success or failure.
作者: Kingpin804 时间: 2012-4-1 13:48
An investor is considering investing in a venture capital project that will have a large payoff at exit, which is estimated to occur in four years. The investor realizes that the risk of failure is high, given the following estimated probabilities:| Year | 1 | 2 | 3 | 4 |
| Failure Probability | 0.30 | 0.28 | 0.28 | 0.25 |
The probability that the project will survive to the end of the fourth year is:
The probability is calculated as: (1 − 0.30) × (1 − 0.28) × (1 − 0.28) × (1 − 0.25) = 0.2722 or 27.22%
作者: Kingpin804 时间: 2012-4-1 13:49
Which of the following statements regarding hedge funds is least accurate? A)
| Global macro funds make bets on the direction of a market, currency or interest rate. |
|
B)
| Long/short funds have a net market neutral position. |
|
C)
| Market-neutral hedge funds may have long and/or short positions. |
|
Long/short funds, by definition, are not market-neutral and usually maintain a net positive or net negative market exposure.
作者: Kingpin804 时间: 2012-4-1 13:49
Hedge funds are usually classified by the media and hedge fund databases according to their:
The past performance of a hedge fund and legal structure are typically not criteria used in classifying hedge funds. Hedge funds are usually classified investment strategy, although the system is somewhat subjective and there is substantial overlap between categories.
作者: Kingpin804 时间: 2012-4-1 13:50
Hedge funds operating in the United States that abide by certain guidelines: A)
| can utilize certain hedging strategies. |
|
B)
| may advertise to “accredited” investors. |
|
C)
| gain exemption from most SEC regulations. |
|
Hedge funds may not engage in advertising of any kind. Hedge funds may or may not utilize hedging strategies. The main reason for hedge funds to organize under section 3(c)(1) is to gain exemption from most SEC regulations.
作者: Kingpin804 时间: 2012-4-1 13:50
Managers of hedge funds are typically compensated by: A)
| an incentive fee, paid only if performance exceeds a “high water mark”. |
|
B)
| a management fee, based on the net change in value of the assets during the year. |
|
C)
| a base management fee, based on the value of assets under management, plus an incentive fee, based on profits. |
|
Typical arrangements pay the manager a base fee, usually around 1% of assets, plus an incentive fee proportional to profits.
作者: Kingpin804 时间: 2012-4-1 13:50
To avoid most SEC regulations, hedge funds organized in the United States typically operate within all of the following guidelines EXCEPT hedge: A)
| funds may accept a maximum number of investors. |
|
B)
| fund investments by individuals are limited to a maximum of $500,000. |
|
C)
| fund managers are prohibited from advertising or marketing the fund. |
|
Hedge funds organized under section 3(c) (7) of the Investment Company Act may not advertise, must limit the number of investors to 500, and may only accept “qualified” investors, as defined by the Act. Hedge funds investments are not subject to a maximum amount.
作者: Kingpin804 时间: 2012-4-1 13:51
Which of the following statements describing hedge funds is least accurate? Most hedge funds: A)
| use hedging techniques to reduce risk. |
|
B)
| are exempt from most securities regulations. |
|
C)
| are available to only a limited number of qualified investors. |
|
The term “hedge fund” is an inaccurate description of the investment class because these funds may or may not employ hedging techniques. Most hedge funds are organized so as to remain exempt from most securities regulations. Participation typically requires a large minimum investment and is limited to small numbers of qualified investors.
作者: Kingpin804 时间: 2012-4-1 13:52
A hedge fund that takes perfectly offsetting long and short positions is best described as a(n):
Market-neutral funds take long and short positions but attempt to offset them to hedge against market moves. Long/short funds take both long and short positions but do not try to offset them. Event-driven funds focus on unique market opportunities, not offsetting positions.
作者: Kingpin804 时间: 2012-4-1 13:53
The largest category of hedge funds in terms of asset size is:
Long/short funds are considered to be the “traditional” type of hedge funds, and they represent the largest category of hedge funds.
作者: Kingpin804 时间: 2012-4-1 13:59
Which of the following statements best describes the fund-of-funds (FOF) class of hedge funds? A fund of funds: A)
| is an open-end mutual fund that primarily invests in other open-end funds. |
|
B)
| is open to institutional investors for the purpose of seeking arbitrage situations in hedge fund pricing. |
|
C)
| allows smaller investors to access the hedge funds market. |
|
A FOF is a fund that invests in hedge funds. They are open to both individual and institutional investors.
作者: Kingpin804 时间: 2012-4-1 13:59
Which of the following two statements, in combination, about the benefits and drawbacks of fund of funds investing, when compared to investing in individual hedge funds, is most accurate? | Benefit of Fund of Funds | Drawback of Fund of Funds |
A)
| | Provide returns that, on a risk-adjusted basis, are superior to investing in individual funds. | Only open to investors with significant capital. |
|
|
B)
| | Enable investors with limited capital to invest in a portfolio of hedge funds. | On a risk-adjusted basis, net-of-fees performance may be lower than that of individual funds. |
|
|
C)
| | May grant investors access to highly sought-after closed funds. | Greater time and effort spent on due diligence by the fund of funds investor. |
|
|
Fund of funds enable investors with limited capital to invest in a portfolio of hedge funds. Usually, a portfolio of hedge funds will decrease the total variability of the returns of the funds comprising the portfolio. Because a fund of funds structure adds an additional layer of management fees, the actual returns may be lower than the returns that investors could achieve by selecting and investing in individual funds themselves. A benefit of fund of funds investing is that the fund of funds manager performs due diligence on the hedge funds in which the fund invests.
作者: Kingpin804 时间: 2012-4-1 14:00
One of the main advantages to investing in a fund of funds (FOF) is that compared to investing in a single hedge fund, FOFs provide: A)
| improved diversification of assets. |
|
B)
| higher expected returns. |
|
C)
| lower management fees. |
|
FOFs have higher management fees than single hedge funds because the FOF will charge a fee in addition to the fee charged by the hedge fund manager. FOFs actually have lower expected returns because of the cost of their increased diversification. FOFs can diversify across many hedge funds strategies to decrease risk.
作者: Kingpin804 时间: 2012-4-1 14:04
Which of the following is least likely considered a benefit of the fund-of-funds hedge fund structure? A)
| The fund-of-funds manager has the expertise needed to evaluate and conduct due diligence on individual hedge funds. |
|
B)
| A fund of funds may have access to hedge funds that are closed to new investors. |
|
C)
| Similar to index funds, a fund of funds charges investors lower fees than individual hedge funds. |
|
Funds of hedge funds charge investors a management fee in addition to the fees charged by each hedge fund manager. This double layer of fees is the primary drawback of a fund of funds. The other choices are likely benefits of fund-of-funds investing.
作者: Kingpin804 时间: 2012-4-1 14:04
Which of the following strategies is least likely to be used by a hedge fund to increase leverage? A)
| Borrowing external funds. |
|
|
C)
| Pursuing arbitrage opportunities. |
|
Borrowing through a margin account and borrowing external funds are methods commonly used by hedge funds to increase leverage. Hedge funds are generally allowed to pursue arbitrage opportunities, which may or may not increase leverage.
作者: Kingpin804 时间: 2012-4-1 14:04
In periods of high volatility, hedge funds may encounter broker-dealers that adopt policies of extremely conservative marking-to-market of fund assets. This is called:
Counterparty risk is the exposure to the creditworthiness of the broker-dealers that hedge funds transact with. Settlement risk describes the risk that a counterparty, such as a broker-dealer, fails to deliver a security as agreed. Pricing risk occurs when broker-dealers, in order to protect themselves, adopt extremely conservative pricing policies, which in turn requires hedge funds to post a greater margin.
作者: Kingpin804 时间: 2012-4-1 14:05
Biases in hedge fund performance measurement are least likely to include: A)
| incomplete historical data. |
|
|
|
The six most common biases present in hedge funds are: “Cherry Picking” by managers. Incomplete historical data. Survival of the fittest. Smoothed pricing. Asymmetrical returns. Fee structures and incentives.
作者: Kingpin804 时间: 2012-4-1 14:05
Which of the following statements regarding hedge fund performance is NOT correct? A)
| Hedge funds have historically underperformed the S&P 500. |
|
B)
| Hedge funds have demonstrated a lower risk profile than traditional equity investments. |
|
C)
| The Sharpe ratio for hedge funds has been consistently higher than for most traditional equity investments. |
|
Hedge funds have demonstrated a lower risk profile than equities when measured by standard deviation. The Sharpe ratio, which is a reward-to-risk ratio, has been higher for hedge funds than for equities. Hedge funds have historically outperformed the S&P 500.
作者: mouse123 时间: 2012-4-1 14:07
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. |
|
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.
作者: mouse123 时间: 2012-4-1 14:07
Hedge fund performance data suffers from serious biases that can be attributed to the fact that: A)
| there is not a reliable index that tracks hedge fund performance. |
|
B)
| hedge funds as an asset class have not been in existence long enough to have meaningful performance data. |
|
C)
| fund managers tend to submit only favorable performance data. |
|
Hedge funds have been in existence since the early 1990’s, long enough to compile meaningful data. There are several reliable indexes designed to track hedge funds. One of the primary reasons why performance data has biases is that submission is strictly voluntary, so managers tend to only submit impressive performance information.
作者: mouse123 时间: 2012-4-1 14:08
Which of the following statements regarding survivorship bias in hedge funds is most accurate? Survivorship bias tends to: A)
| overstate the performance and understate the volatility of hedge funds. |
|
B)
| overstate both the performance and volatility of hedge funds. |
|
C)
| understate the performance and overstate the volatility of hedge funds. |
|
Survivorship bias exists because only the successful hedge funds submit performance data, thus overstating performance when the index is considered to be representative of the entire hedge fund population. Likewise, stable funds tend to succeed, while more volatile funds tend to go out of business, causing the database to tend to understate volatility for hedge funds as an asset class.
作者: mouse123 时间: 2012-4-1 14:08
Survivorship bias is acute with hedge fund databases because hedge: A)
| funds experience higher volatility of returns than traditional investments. |
|
B)
| funds are more highly leveraged than other asset classes. |
|
C)
| fund managers often do not have to comply with performance presentation standards. |
|
The main reason behind the survivorship bias problem in hedge fund reporting is that hedge funds are exempt from most SEC regulations, including performance presentation standards. This lack of standards leads to many inconsistencies in reporting that are not present in other asset classes.
作者: mouse123 时间: 2012-4-1 14:08
Only successful, ongoing hedge funds are included in hedge fund databases. The resulting inflation of reported hedge fund performance can be best described as:
Asymmetrical returns refers to the option-like return profiles that result from some hedge fund strategies. Self-selection bias reflects the fact that submission of data by fund managers is voluntary, and they tend to submit only impressive results. Survivorship bias does result from the fact that only successful hedge funds with ongoing operations are included in databases, thus putting an upward bias on the returns of hedge funds as an asset class.
作者: mouse123 时间: 2012-4-1 14:09
Hedge funds are generally not required to publicly disclose their performance, however, some managers choose to make performance information available to the public. This information is then included in hedge fund indexes and some conclusions about the performance of hedge funds can be drawn. Which of the following statements regarding hedge fund performance is least accurate? A)
| When measured by standard deviation, hedge funds are less risky than traditional equity investments. |
|
B)
| In recent years, the Sharpe ratio for hedge funds has been higher than that of most equity investments. |
|
C)
| The reported volatility of hedge fund returns may be higher than the actual volatility of returns. |
|
Many assets that are included in a hedge fund portfolio are not actively traded. Managers utilize estimates to report the market value and performance of their hedge funds. Using estimates rather than actual market transactions may result in smoothed pricing, thereby reducing reported volatility.
作者: mouse123 时间: 2012-4-1 14:09
Which of the following statements regarding closely held companies is NOT correct? A)
| Closely held companies can be formed as corporations, partnerships, or sole proprietorships. |
|
B)
| The valuation of closely held companies is straightforward because of the relatively small number of investors. |
|
C)
| The equity shares of closely held companies are not publicly traded. |
|
Closely held companies can be structured as one of several legal forms. The shares of closely held companies by definition are not publicly traded and are highly illiquid. Although there may be a small number of investors, the valuation of closely held companies is difficult because shares are illiquid, and there is limited information available.
作者: mouse123 时间: 2012-4-1 14:09
Edward Cloever, CFA, is reviewing a colleague’s first draft of a research report on how the legal environment affects the valuation of closely held companies. Two statements in the report draw Cloever’s attention:
Statement 1: In situations that require a legal determination of a company’s value, market transactions provide a ready estimate for a publicly traded company, but no uniform definition exists for the value of a closely held company.
Statement 2: If two closely held companies are identical in their operations and profitability, but one is structured as a corporation and the other is structured as a partnership, the rational investor should be indifferent between the two companies.
Should Cloever agree or disagree with these two statements?
Cloever should agree with Statement 1 but disagree with Statement 2. Because their equity shares do not trade in the open market, closely held companies do not have a readily available estimate of their value. Different legal jurisdictions have their own definitions of intrinsic value, fundamental value, and fair value that can become important if litigation arises. A closely held company’s legal structure as a corporation, partnership, or proprietorship affects the rights and responsibilities of the investors, and therefore affects the value of their investments. The investor must take the difference in legal structure into account when evaluating otherwise identical firms.
作者: mouse123 时间: 2012-4-1 14:10
Approaches commonly used in the valuation of closely held companies include all of the following EXCEPT the: |
B)
| fundamental value approach. |
|
|
The cost approach and the comparables approach are both used in the valuation of closely held companies. The fundamental value approach is a fictitious approach.
作者: mouse123 时间: 2012-4-1 14:10
Regarding closely held companies, the valuation adjustment, due to the lack of a public market for the shares, is called a: A)
| marketability discount. |
|
B)
| marketability premium. |
|
|
A minority discount would be applied to shares that represent a non-controlling minority interest in a company. Shares of closely held companies are not publicly traded, so the shares should be discounted an appropriate amount to reflect this lack of marketability.
作者: mouse123 时间: 2012-4-1 14:10
Which of the following is a disadvantage to using the comparables approach to valuing investments in closely held companies? A)
| Cost to replace assets may not reflect current value. |
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B)
| It is difficult to determine the appropriate discount rate. |
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C)
| The benchmark value used may be mispriced or difficult to establish. |
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A discount rate and an estimate of future income are both variables used in the income approach. The cost to replace a company’s asset is a factor when using the cost approach. The benchmark value used in the comparable may be mispriced or difficult to establish if no comparable companies have been sold recently.
作者: mouse123 时间: 2012-4-1 14:11
The securities of companies that are either close to bankruptcy or have already filed for bankruptcy protection are called: A)
| inactively traded securities. |
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C)
| distressed securities. |
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Inactively traded securities are infrequently traded, but the name “inactively traded” does not imply anything about the financial condition of the company. “Discount” is a description 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.
作者: mouse123 时间: 2012-4-1 14:11
Investing in distressed securities is most similar to investing in which of the following asset classes? |
B)
| Exchange-traded funds. |
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Investing in distressed securities is similar to venture capital investing because both strategies seek an equity position in a company that is eventually successful. Both are illiquid investments with long time horizons.
作者: mouse123 时间: 2012-4-1 14:11
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. |
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B)
| the debt of a struggling company, with the goal of ending up with an equity position in the reorganized company. |
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C)
| a controlling equity position in a company experiencing financial difficulties and replacing management with a team of turnaround specialists. |
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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.
作者: mouse123 时间: 2012-4-1 14:12
Investing in distressed securities and venture capital investing are similar in all of the following ways EXCEPT: |
B)
| heavy involvement by investors. |
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C)
| a large investment requirement. |
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Only venture capital requires a large investment. Both remaining choices are true of both investing in distressed securities and investing in venture capital.
作者: mouse123 时间: 2012-4-1 14:12
In periods of rising inflation, commodities can act as a hedge to a portfolio of stocks and bonds because the: A)
| commodities will typically appreciate in price while the prices of the stocks and bonds may decline. |
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B)
| commodities will not be affected by a rise in inflation. |
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C)
| commodities can provide current income to offset any price decreases in the stocks and bonds. |
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In a period of rising inflation, the prices of commodities tend to go up, while the prices of stocks and bonds often tend to go down. Thus, the commodities position will act as an inflation hedge for the stock and bond portfolio.
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