Board logo

标题: Alternative Investments【 Reading 31】习题精选 [打印本页]
作者: prashantsahni    时间: 2012-4-2 10:49     标题: [2012 L3] Alternative Investments【Session13- Reading 31】习题精选

With respect to the role of alternative assets in a portfolio, it can be best described as exposure to:
A)
special investment strategies.
B)
unique asset classes and/or special investment strategies.
C)
unique asset classes only.


We can categorize alternative investments into three categories corresponding to the role they play in the portfolio.
作者: prashantsahni    时间: 2012-4-2 10:50

Special due diligence issues such as valuation, credit analysis, and financial structure are most likely associated with investments:
A)
in managed futures.
B)
in distressed securities.
C)
made indirectly in real estate.


Distressed securities investing requires due diligence with respect to business valuation, credit analysis, and assessing the company’s problems and financial structure.
作者: kim226    时间: 2012-4-2 10:51

The structure, explanation of performance data, and style and strategy are special due diligence issues most associated with:
A)
hedge funds.
B)
direct real estate investing.
C)
distressed securities.


Due diligence in hedge funds should include an inquiry into the following list: the structure of the hedge fund, the strategy and style of the hedge fund, performance data since inception with explanations, risk measures, research, administration, and legal issues.
作者: kim226    时间: 2012-4-2 10:52

With respect to information efficiency and potential for diversification, in comparing alternative investments to exchange traded stocks, the markets for alternative investments are:
A)
less informationally efficient and provide more opportunity for diversification.
B)
less informationally efficient and provide less opportunity for diversification.
C)
more informationally efficient and provide more opportunity for diversification.



Alternative investments can provide exposure to unique risks and trading strategies and thus provide good diversification to a stock and bond portfolio. The markets for alternative investments are informationally less efficient than most stock markets.
作者: kim226    时间: 2012-4-2 10:52

With respect to due diligence costs and liquidity, in comparing alternative investments to exchange traded stocks, the markets for alternative investments have:
A)
less liquidity and higher due diligence costs.
B)
less liquidity and lower due diligence costs.
C)
more liquidity and higher due diligence costs.


The common features are: low liquidity, provide good diversification, due diligence costs are high, difficult appraisals, and the markets for alternative investments are informationally less efficient than most stock markets.
作者: kim226    时间: 2012-4-2 10:53

Which of the following is least likely to be a due diligence checkpoint in the selection process of active managers of alternative investments?
A)
The geographic location of the office with respect to the geographic locations in which the manager invests.
B)
The service providers like lawyers and ancillary staff working for the manager’s firm.
C)
Market opportunity the manager seeks to exploit.


The due diligence checkpoint list does not mention the geographic location of the offices.
作者: kim226    时间: 2012-4-2 10:53

In the due diligence process of selecting an active manager of alternative investments, “assessing the investment process” means assessing the:
A)
stability of the organization and employee turnover.
B)
competitive edge the manager offers.
C)
special assets the manager offers.


In the due diligence checkpoints, “assessing the investment process” means assessing the competitive edge the manager offers. The special assets are associated with the “market opportunity” checkpoint. The stability of the organization and employee turnover is associated with the “organization” checkpoint.
作者: kim226    时间: 2012-4-2 10:54

In the due diligence process of selecting an active manager of alternative investments, “assessing the organization of the manager’s firm” means assessing the:
A)
terms and structure of the investments the manager offers.
B)
stability of the firm and staff turnover.
C)
documents (e.g., prospectuses of the investments the manager offers).


Assessing the organization of the manager and his/her operations means assessing whether it is stable and well run. This would also mean measuring the staff turnover.
作者: kim226    时间: 2012-4-2 10:57

In the special issues that alternative investments raise for investment advisors of private wealth clients, “decision risk” is associated with:
A)
changing a strategy at the time the portfolio has incurred a large loss.
B)
making hiring and firing decisions and general employee turnover of the investment firm.
C)
assessing the investment opportunity.


Decision risk is the risk of irrationally changing a strategy.
作者: kim226    时间: 2012-4-2 10:57

In the special issues that alternative investments raise for investment advisors of private wealth clients, with respect to tax issues and suitability:
A)
suitability is a special issue to consider but tax issues are not.
B)
tax issues are a special issue to consider but suitability is not.
C)
both are explicitly special issues to consider.


Special issues that advisors for private-wealth clients should address are tax issues, determining suitability, communicating with the client, decision risk, and determining if they have a large position in a closely-held company.
作者: kim226    时间: 2012-4-2 10:57

Bernice Clark, CFA, is analyzing the portfolio of a private wealth client. In the process, Clark wants to address special issues that alternative investments raise for her client. The special issues would:
A)
not include measuring the ownership in the client’s corporate bond portfolio but would include measuring the client’s ownership in closely held companies.
B)
not include measuring the ownership in the client’s corporate bond portfolio and not include measuring the client’s ownership in closely held companies.
C)
include measuring the ownership in the client’s corporate bond portfolio and the client’s ownership in closely held companies.


Special issues that advisors for private-wealth clients should address are tax issues, determining suitability, communicating with the client, decision risk, and determining if they have a large position in a closely-held company. Measuring the ownership in corporate bonds is not a “special issue.”
作者: kim226    时间: 2012-4-2 10:58

Hollis, Ignitowski, Jacobs, and Kelso are four analysts working in a windowless basement office at Madison Partners, a money manager specializing in alternative investments. They have an ongoing debate over which alternative-investment vehicle is best. As is often the case in long-running feuds, each frequently refers back to a favorite argument.
Hollis: “I like receiving convertible preferred stock for my venture-capital investments because my claim is usually senior to those of investors who get in later.”

Ignitowski: “Agricultural commodity investments are better, because they provide an inflation hedge and have traditionally delivered better returns than bonds.”

Jacobs: “Private-equity limited partnerships not only limit the potential losses of initial investors, but also avoid double taxation.“

Kelso: “A fund of funds has less survivorship bias than an index, and it rarely falls prey to style drift.”
Opinions about investment classes aside, the four Madison analysts are tasked with performing due diligence on hedge funds. Hedge funds are notoriously difficult to analyze, and the analysts divide up the task, with each focusing on a certain aspect of the due diligence.
Hollis considers the hedge fund's strategy, looking at the investment style as well as the individual investments to assess whether the fund is likely to outperform not only the market, but other hedge funds. In this analysis, he also considers the fund's financial policies and market risk profile, using downside deviation rather than standard deviation. Hollis also considers the age of the fund. He prefers funds that have been around for awhile because experienced management gives the funds an edge. Lastly, Hollis' duties also include reviewing the funds' structure, examining who manages, audits, or regulates the fund.
Ignitowski focuses on performance data. Because hedge funds are not well regulated, they have a lot of freedom regarding how they present performance data. Ignitowski drills down into the performance of individual holdings to assess whether the stated returns are accurate. He then recalculates cumulative performance data using weekly returns, adjusting when possible for inflows and outflows. Ignitowski prefers larger funds since they have historically outperformed smaller funds.
Jacobs tackles the administrative details, starting with an analysis of the fund's fee structure. He researches legal issues, including pending lawsuits, regulatory actions, and lock-up provisions. Jacobs' review also addresses personnel issues, including the amount of staff, turnover rates, and, when possible, rates of compensation.
Kelso calls investors in the hedge fund for references. He asks about investors' knowledge of the managers' investment styles and whether they deviate from the stated style.
After the four analysts compile their analysis of hedge funds, their due diligence is forwarded upstairs to the investment director, Francine Finster. She does not see the analysts' e-mail on this particular day because she is in conference with Dan Braden, a dot-com millionaire who retired at 35 with just one goal: becoming a billionaire. Braden considers his portfolio of traditional investments – 60 percent large-cap stocks, 20 percent small-cap stocks, and 20 percent bonds -- well-diversified for his age and level of wealth, but his knowledge of alternative investments is not extensive, and he is consulting Madison Partners for help with that portion of his portfolio.
Braden has high hopes for his portfolio. He wants Finster to find him an asset class that will provide better returns than stocks and a higher Sharpe ratio than bonds, while at the same time bringing an additional diversification benefit to the portfolio. Finster promises to look at some indexes and do some research into historical returns of various asset classes in an attempt to find this investment, but doubts she can find anything that will meet Braden's criteria.
Finster convinces Braden to allow Madison to manage his alternative investments. She immediately purchases a security for him, expecting it to lower his annual returns but increase his Sharpe ratio.
Looking ahead, Finster expects Braden to be a fairly difficult customer, demanding very high returns and creative strategies. She decides that he might like the idea of a swap. Finster prefers interest-rate and commodity swaps but has not been involved in either type of transaction for a number of months. To refresh her memory, she wrote down some bullet points comparing the two types of swaps:The alternative investment Finster added to the Braden portfolio is least likely to be:
A)
commodity futures.
B)
a venture-capital fund.
C)
a direct real estate investment.


Venture capital funds generally behave like private equity, and are designed to boost returns, not diversify. Futures and real estate are traditionally used as diversification tools and are likely to lower overall returns for a stock-heavy portfolio. As such, venture-capital is the least likely to reduce returns while raising the Sharpe ratio. (Study session 13, LOS 31.d)
Which of the Madison analysts does NOT ignore hedge-fund conventions?
A)
Ignitowski, with his opinions about fund size.
B)
Hollis, with his opinions about fund age.
C)
Hollis, with his measure of fund risk.


Common hedge-fund conventions include, "large funds underperform small funds," "young funds outperform old funds," and the use of simple monthly returns compounded over 12 periods. The analysts do not follow these conventions. While standard deviation is a common convention for calculating the risk of equity and debt investments, downside deviation is commonly used for hedge funds. As such, Hollis' measure of fund risk is in keeping with hedge-fund convention. (Study session 13, LOS 31.s)
Based on historical data, Finster can most likely meet Braden's lofty goals by investing in:
A)
venture capital.
B)
nothing, because no asset class meets those requirements.
C)
distressed securities.


The HFR Distressed Securities index outperforms both stocks and bonds absolutely, with higher Sharpe ratios than either. It is also poorly correlated with the stock market, so it would diversify a stock portfolio. Private equity has historically delivered better returns than stocks, but it is highly correlated with the stock market, and Sharpe ratios can be quite high. Direct investments in real estate generally provide returns lower than those of stocks, though they do provide substantial diversification benefits. (Study session 13, LOS 31.f)
Which of Finster's notes about swaps is least accurate?
A)
The value of a commodity swap will change over time regardless of whether market rates or prices change.
B)
The value of an interest-rate swap will change over time if market rates change, but will not change over time if market rates stay the same, even if prices change.
C)
Both interest-rate and commodity swaps have a value of zero initially.


The values of both interest-rate swaps and commodity swaps will change over time regardless of movement (or lack thereof) in market rates or prices. Both types of swaps do indeed have a value of zero at inception, and a change in market rates will affect the value of both types of swaps. (Study session 13, LOS 32)
The Madison due diligence for hedge funds is detailed, but not comprehensive. Which traditional aspect of due diligence is neglected?
A)
Consideration of the fund's use of leverage.
B)
Analysis of the fund's research expenditures.
C)
Assessment of the fund's suitability for particular investors.


A review of the fund's competitors is a good idea, but it is not part of due diligence. Neither is an assessment of the fund's suitability for particular investors. Both of those reviews should be part of the investment decision, but due diligence normally means an analysis of how the fund operates, rather than its investment merits relative to outside criteria. The fund's use of leverage would fall under Hollis' expertise as he considers the investment style, financial policies, and risk profile. Madison Partners appears to have this issue well in hand. However, the fund's research strategy and expenditures are key to understanding how the fund operates, and none of Madison's analysts appears to address this topic. (Study session 13, LOS 31.b)
Which of the Madison Partners made the most accurate statement about alternative investments?
A)
Ignitowski.
B)
Hollis.
C)
Jacobs.


Hollis is wrong because the claims of later investors are generally senior to those of investors holding convertible preferred stock. Ignitowski is wrong because agricultural commodities have historically provided lower returns than bonds. Jacobs' assessment of private-equity limited partnerships is accurate. (Study session 13, LOS 31.k)
作者: kim226    时间: 2012-4-2 10:59

Ben Leesom, CFA, thinks distressed securities are appropriate for one of his clients and would like to include them in his client's portfolio. If liquidity is important for the client, then Leesom should recommend:
A)
neither an investment with a hedge fund structure nor a private equity structure.
B)
investments with either a hedge fund structure or a private equity structure.
C)
an investment with a hedge fund structure over a private equity structure.


Distressed securities can be divided by the two indicated structures. Hedge fund structured investments are usually more liquid than investments in distressed equity using the private equity structure.
作者: kim226    时间: 2012-4-2 11:00

With respect to adding managed futures investing to a stock and bond portfolio:
A)
a trend-following strategy will offer diversification equal to that of a contrarian strategy.
B)
a trend-following strategy will offer lower diversification than a contrarian strategy.
C)
a trend-following strategy will offer more diversification than a contrarian strategy.


For managed futures funds, a trend-following strategy will offer lower diversification than a contrarian strategy. This should be obvious since the trends would be those of the cash markets for which the investor is trying to obtain diversification. The market for the underlying securities will also play a role.
作者: kim226    时间: 2012-4-2 11:00

Which of the following is least likely to be included in private equity subgroups?
A)
Start-up companies.
B)
Private investment in public entities.
C)
Futures funds.


Private equity subgroups are start-up companies, middle-market private companies, and private investment in public entities. The distinguishing feature for the subgroups is the stage of development of the company to which the invested dollars flow.
作者: kim226    时间: 2012-4-2 11:00

Within the alternative asset class of real estate, analysts can classify investments as:
A)
either start-up or middle market but not as direct or indirect.
B)
either direct or indirect and as either start-up or middle market.
C)
either direct or indirect but not as either start-up or middle market.


Real estate investments are generally categorized as direct (i.e., the purchase of land and buildings) or indirect that includes REITs and CREFs. The sub-categories of start-up and middle market apply to private equity and not real estate.
作者: kim226    时间: 2012-4-2 11:01

Lee Benson, CFA, is considering purchasing stock in a company that produces oil. With respect to asset class and subgroup, as an alternative investment, this choice would be most accurately categorized as:
A)
a direct investment in commodities.
B)
an indirect investment in commodities.
C)
an indirect investment in real estate.


Indirect invetment is one method used to gain exposure to commodities. Direct investment is the actual purchase of the commodities or the purchase of derivatives on commodities.
作者: kim226    时间: 2012-4-2 11:01

Compared to indirect investments in real estate, direct investments in real estate are least likely to have which of the following properties?
A)
Lower mobility.
B)
Lower liquidity.
C)
Higher transparency.


Direct investments in real estate generally have low liquidity, large lot sizes, high transactions costs, low mobility, and asymmetric information in transactions (low transparency).
作者: kim226    时间: 2012-4-2 11:01

With respect to managed futures and real estate, legal issues and valuation methods are special due diligence issues associated with:
A)
real estate and managed futures.
B)
real estate only.
C)
managed futures only.


Active, direct investment in real estate requires all the due diligence checkpoints. For the investment process due diligence checkpoint, valuation methods deserve special attention. Under documents, there may be special zoning and legal issues.
作者: kim226    时间: 2012-4-2 11:02

With respect to weighting schemes for hedge fund indices, the weighting schemes:
A)
are always based upon assets under management.
B)
can be either equally weighted or based upon assets under management.
C)
are always equally weighted.


Weighting schemes are usually either equally weighted or based upon assets under management.
作者: kim226    时间: 2012-4-2 11:02

With respect to commodities and managed futures, which have investable indices?
A)
Both commodities and managed futures.
B)
Neither commodities nor managed futures.
C)
Commodities but not managed futures.


Indices for both asset classes use trading rules and assets to which investors have access.
作者: kim226    时间: 2012-4-2 11:03

Real estate has the National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index as its principal benchmark. Which of the following is most accurate?
A)
The volatility of the index has a downward bias.
B)
The volatility of the index has an upward bias.
C)
The average return of the index has an upward bias.


Since the prices are obtained periodically, the volatility of the index has a downward bias.
作者: kim226    时间: 2012-4-2 11:03

With respect to hedge fund indices, back-fill bias refers to:
A)
a hedge fund manager filling in historical values of his/her hedge fund’s performance when the fund has been selected to be included in an index.
B)
the increased inflow of investments to a given fund in an index right after the style of the index has performed well.
C)
modifying the historical series of the index by replacing the historical returns of recently dropped funds with the historical returns of new funds added to the index.


Biases often exist in hedge fund indices because of the self-reporting of fund returns. This can apply to returns as they are earned or when filling in gaps in the historical data. The inclination is to over report. Backfill or inclusion bias is the name of the potential bias when a hedge fund joins an index and the manager adds historical data to complete the series.
作者: kim226    时间: 2012-4-2 11:04

With respect to hedge fund indices, survivorship bias:
A)
can be as high as 1.5% to 3% and is probably low for event-driven strategies and higher for hedged-equity strategies.
B)
can be as high as 1.5% to 3% and is probably high for event-driven strategies and lower for hedged-equity strategies.
C)
can be as high as 3% to 5% and is probably high for event-driven strategies and lower for hedged-equity strategies.


Survivorship bias is a big problem for these indices. Indices may drop funds with poor track records or that fail, and this will overestimate returns in the overall market. Studies have shown that the bias can be as high as 1.5% to 3% per year. The degree of survivorship bias varies among the hedge-fund strategies. It is probably low for event-driven strategies and higher for hedged-equity strategies.
作者: kim226    时间: 2012-4-2 11:04

One problem in creating a private equity index is the:
A)
issue of leverage and how to deal with it.
B)
infrequent repricing of the components.
C)
problems with defining what constitutes a private equity investment.


The value of a private equity index depends upon price-revealing events like IPOs, mergers, the raising of new financing, etc... Thus, the re-pricing of the index occurs infrequently.
作者: kim226    时间: 2012-4-2 11:05

For use in evaluating hedge funds, which of the following is NOT a shortcoming of the Sharpe ratio?
A)
It uses an arbitrary reference return.
B)
It is a stand-alone measure that ignores the diversification contributions of a hedge fund to an overall portfolio.
C)
It has had little success in predicting winners.


The Sharpe ratio is a very standardized measure, and none of the inputs are arbitrary. Both remaining choices are recognized shortcomings of the Sharpe ratio.
作者: kim226    时间: 2012-4-2 11:05

Suzanne Harlan has a large, well-diversified stock and bond portfolio. She wants to try some alternative investments, and has contracted with Laurence Philips, principal of Philips Finance, to help assemble a new portfolio.
Before agreeing to make recommendations for Harlan, Philips wants to determine whether she is a good candidate for alternative investments. He gives her a standard questionnaire that asks open-ended questions of all potential clients. Here are some of Harlan's comments:
After reading Harlan's responses and learning that she is a fairly sophisticated investor, Philips agrees to take her on as a client. Harlan has a lot of experience with investments and has some ideas what she'd like to do. She brings Philips the following ideas:
Harlan then tells Philips that it is imperative that the returns of any investments he recommends must be in some way comparable to a benchmark.
Philips is not excited about the commodity idea and does not like funds of funds. However, he does know of several managers of individual hedge funds that might interest Harlan. He talks her out of the fund of funds idea and suggests she put her money in the Stillman Fund, which is run by one of his college friends. Fund manager Mark Stillman concentrates on spin-offs, generally buying the spun-off company and shorting the parent company.
Harlan seeks alternative investments that will both boost returns and diversify her portfolio. Which pair of her proposed investments represents the worst choices for each goal?
Net returnsDiversification
A)
LumberKelly Tool and Die
B)
LumberHedge funds
C)
Real estate fundsHedge funds


Commodity investments are primarily diversification tools, having little correlation with traditional stocks and bonds. The Kelly Tool and Die investment is private equity, which is more of a return enhancer than a diversifier. Real estate funds can boost both diversification and returns, while hedge funds can boost returns, diversify, or both, depending on the nature of the fund. (Study Session 13, LOS 31.f)
Based on her investment suggestions and survey answers, Harlan is least concerned with:
A)
inflation.
B)
volatility.
C)
liquidity.


While Harlan's comment about being willing to accept risk may suggest she is not concerned about volatility, she is most definitely concerned on a portfolio level, as evidenced by her desire to use alternative assets for diversification purposes. Nothing in the information presented above offers any hint about Harlan's concerns about inflation. However, Harlan's stated desire to build wealth for her heirs suggests liquidity is not a concern. (Study Session 13, LOS 31.f)
In his attempt to talk Harlan out of investing in a fund of funds, Philips addressed the advantages of investing in individual funds. Which of the following is his most compelling argument?
A)
The likelihood of style drift in a fund of funds.
B)
The lack of benchmarks for a fund of funds.
C)
The lower expenses of individual funds.


The biggest disadvantage of the fund of funds is the extra layer of fees. Style drift could be an issue for both an individual hedge fund and a fund of funds, much as it is with traditional mutual funds. The issue with benchmarks is probably more troubling for individual funds than for funds of funds. (Study Session 13, LOS 31.r)
The Stillman fund uses which strategy?
A)
Relative value.
B)
Hedged equity.
C)
Merger arbitrage.


Merger arbitrage funds usually focus on mergers, spin-offs, or takeovers, buying one company in the transaction and shorting the other. (Study Session 13, LOS 31.p)
Which of Harlan's responses is most likely to make Philips consider her a bad candidate for alternative investments?
A)
"I pay several million dollars in taxes every year, and I want any additional investments to be tax-friendly."
B)
"I'm interested in high returns. I'm not afraid of risk, and I'm investing this money for the benefit of my eventual heirs."
C)
"I pay a lot of attention to expense and return data from my investments and track their performance closely."


Many alternative assets provide high returns, and a high risk tolerance and low need for liquidity are positives for investors in alternative asset classes. And while many alternative assets are risky, they can provide a substantial diversification benefit when combined with mainstream investments. Many alternative investments are tax-friendly. However, most of the investments considered for this exam are not easy to value, and difficult to track closely over short periods of time. (Study Session 13, LOS 31.a)
If Harlan is truly concerned about benchmarks, she should avoid which of her suggested investments?
A)
Kelly Tool and Die.
B)
Hedge funds.
C)
None of them, benchmarks are available for all asset classes.


Benchmarks are available for commodities, real estate, private equity, and hedge funds, though not all of them are easy to interpret. (Study Session 13, LOS 31.e)
作者: kim226    时间: 2012-4-2 11:06

When added to a portfolio of stocks and bonds, based upon historical performance, we can expect distressed securities to contribute:
A)
enhanced return but not diversification.
B)
both enhanced return and diversification.
C)
diversification but not enhanced return.


They can provide high returns because many investors cannot hold distressed debt securities, and few analysts cover the market. Based on comparisons of the average and Sharpe ratio, the HFR Distressed Securities Index outperformed both stocks and bonds both absolutely and on a risk-adjusted basis. The returns are often event-driven so the return is uncorrelated to the overall stock market and can provide diversification.
作者: kim226    时间: 2012-4-2 11:06

As an asset class, over the period 1990-2004, commodities would:
A)
have enhanced the return of a stock and bond portfolio largely from the performance of the energy subgroup.
B)
not have enhanced the return of a stock and bond portfolio and would have done worse except for the performance of the energy subgroup.
C)
not have enhanced the return of a stock and bond portfolio largely from the underperformance of the energy subgroup.


The returns on commodities have generally been lower over the longer period of 1990-2004 than stocks and bonds both absolutely and on a risk-adjusted basis. The energy subgroup of commodities has had the highest returns, and without it, the broad GSCI index return would have been much lower.
作者: kim226    时间: 2012-4-2 11:06

When compared to a portfolio of publicly traded stocks, private equity is:
A)
correlated with stocks but adds moderate diversification because of its idiosyncratic risk component.
B)
uncorrelated with stocks and adds a high degree of diversification.
C)
correlated with stocks and has a low idiosyncratic risk component so it adds virtually no diversification.


Private equity returns typically move with stock market returns. Computed correlations are often positive and low, but some attribute the low correlation to the infrequently-updated or “stale” prices of the private equity returns. Each investment has a large idiosyncratic risk component, however, which can provide moderate diversification.
作者: kim226    时间: 2012-4-2 11:07

Compared to stocks, direct equity investments in real estate have had:
A)
higher volatility of returns.
B)
about the same volatility of returns.
C)
lower volatility of returns.


Lower volatility is the correct answer. The average return has actually been lower than those of stocks over the long-term.
作者: kim226    时间: 2012-4-2 11:07

Direct equity real estate investing has the following disadvantages over indirect real estate investing EXCEPT:
A)
political risk.
B)
less control over the investment’s performance.
C)
high commissions.


Direct equity real estate investing has the following disadvantages: lack of divisibility means a single investment may be a large part of the investor’s portfolio. There are high information cost, high commissions, high operating and maintenance costs, and hands-on management requirements. There are special geographical risks like neighborhood deterioration and the political risk of changing tax codes.
作者: kim226    时间: 2012-4-2 11:08

Direct equity real estate investing has all of the following advantages over indirect real estate investing EXCEPT:
A)
lower information costs.
B)
tax deductible expenses.
C)
the ability to manage geographic diversification.


Direct equity real estate investing has the following advantages: many expenses are tax deductible, the ability to use more leverage than other investments, having more control, and the ability to diversify geographically. Higher information costs are a disadvantage to direct real estate investing.
作者: kim226    时间: 2012-4-2 11:08

With respect to buyers of venture capital, which group represents the first group to invest in the company after the initial entrepreneurs and their friends and family?
A)
Angel investors.
B)
Venture capitalists.
C)
Strategic partners.


Buyers of venture capital include angel investors who are usually accredited investors and the first outside investors after the family and friends of the company founders. Venture capitalists come in later after identifying companies with potential but need financial and strategic support. Further, large companies are usually in the same industry as the issuer and are also called strategic partners.
作者: kim226    时间: 2012-4-2 11:09

With respect to the terms “formative-stage companies” and “expansion-stage companies”, which are considered issuers of venture capital?
A)
Formative-stage companies only.
B)
Both formative-stage companies and expansion-stage companies.
C)
Neither formative-stage companies nor expansion-stage companies.


Issuers of venture capital include formative-stage companies that are either new or young and expansion-stage companies that need funds to expand their revenues or prepare for an IPO.
作者: kim226    时间: 2012-4-2 11:09

With respect to the seed and start-up point in the early stage of venture capital, which of the two represents a point where the company has already started generating revenue?
A)
Not at the seed point, but revenue has begun at the start-up point.
B)
Not at the start-up point, but revenue has begun at the seed point.
C)
In neither the seed nor start-up point.


The stages through which private companies pass are the early-stage, later-stage, and exit stages. The early stage consists of i) seed: the small amount of money provided by the entrepreneur to get the idea off the ground, ii) start-up: usually a pre-revenue stage that brings the entrepreneur’s idea to commercialization, iii) first stage: additional funds if the idea is sound but start-up funds have run out. The later-stage occurs after revenue has started.
作者: kim226    时间: 2012-4-2 11:09

With respect to venture capital (VC) funds and buyout funds, measuring returns accurately is:
A)
equally difficult with VC funds as it is with buyout funds.
B)
more difficult with VC funds than with buyout funds.
C)
less difficult with VC funds than with buyout funds.


The difference is a natural consequence of the buyout funds purchasing entities in later stages of development.
作者: kim226    时间: 2012-4-2 11:10

In contrast to venture capital funds, buyout funds usually have:
A)
less frequent losses and less upside potential.
B)
more frequent losses and more upside potential.
C)
less frequent losses and more upside potential.


These differences are the natural consequence of the buyout funds purchasing entities in later stages of development or even established companies where the risks are lower.
作者: kim226    时间: 2012-4-2 11:10

In contrast to venture capital funds, buyout funds usually have a:
A)
lower level of leverage and earlier and steadier cash flows.
B)
higher level of leverage and later and more erratic cash flows.
C)
higher level of leverage and earlier and steadier cash flows.


Buyout funds are usually investing in later-stage companies where the risks are lower. The cash flows are steadier and the investors can use more leverage.
作者: kim226    时间: 2012-4-2 11:11

The convertibilty feature in convertible preferred stock is important because it means that preferred stockholders:
A)
can block a possible buyout.
B)
can convert their claims to equal those of later investors in the company.
C)
can benefit from a buyout favorable to common stockholders.


Any buyout of the company that is favorable to shareholders will lead to the conversion of the preferred stock.
作者: kim226    时间: 2012-4-2 11:12

Compared to common stockholders, investors who use convertible preferred stock to make venture capital investments will receive the promised dividend:
A)
before common stockholders receive a dividend but not if there is a liquidation.
B)
only if common stockholders receive a dividend or a disbursement through liquidation.
C)
before common stockholders receive a dividend or a disbursement through liquidation.


Preferred stockholders must be paid a specified amount, say twice the initial investment, before common stockholders can receive cash in the form of dividends or distributions through liquidation.
作者: kim226    时间: 2012-4-2 11:12

Frank Campbell, CFA, has a client who wants to make a venture capital investment. Campbell is considering recommending convertible preferred. This would least likely be appropriate if the client wishes to:
A)
have a priority of claims over subsequent investors in the company.
B)
receive dividends.
C)
benefit in the case of a buyout of the company.


Typically, investors in subsequent rounds after preferred stock issuance will have senior claims to preferred stock. Both remaining choices are reasons to invest using convertible preferred stock.
作者: karoliukas    时间: 2012-4-2 11:13

Which of the following most likely represents the timeline of a private equity fund?
A)
The commitment period of 5 years, the life of the fund reaching 7-10 years, an option to extend the fund 5 more years.
B)
The commitment period of 2 years, the life of the fund reaching 5 years, an option to extend the fund 3 more years.
C)
The commitment period of 7-10 years, the life of the fund reaching 12-15 years, an option to extend the fund 5 more years.


The commitment period usually occurs during the first five years when the sponsor gives the capital calls. The expected life of these funds is 7-10 years, and there is often an option to extend the life up to 5 more years.
作者: karoliukas    时间: 2012-4-2 11:13

Which of the following most likely represents the compensation to a sponsor of a private equity fund?
A)
A management fee of 2% and an incentive fee of 20%.
B)
A management fee of 10% and an incentive fee of 10%.
C)
A management fee of 2% and an incentive fee of 2%.


As a manager, the sponsor gets a management fee and incentive fee. The management fee is usually around 1.5%-2.5%, and is based upon the committed cash and not just the cash already invested. The percent may decline over time based upon the assumption that the sponsor’s work declines over time. The incentive fee is the share of the profits, usually around 20%, that is paid to the manager after the fund has returned the outside investors’ capital.
作者: karoliukas    时间: 2012-4-2 11:14

In the life of a private equity fund, capital calls represent the:
A)
request for more capital by the fund sponsor from the investors after the commitment period.
B)
request for more capital by the fund sponsor from the investors during the commitment period.
C)
request for more capital by the fund sponsor from the investors at the beginning of the fund prior to the commitment period.


The timeline includes the sponsor getting commitments from the investors at the start of the fund and then giving “capital calls” over the first five years (typically) called the commitment period to bring in the promised cash.
作者: karoliukas    时间: 2012-4-2 11:14

If a hedge fund goal is the elimination of systematic risk, a problem for the fund in motivating the manager is that:
A)
the standard incentive fee only applies to raw earnings and would not reward the elimination of systematic risk.
B)
it is impossible to gauge the degree to which systematic risk has been eliminated.
C)
the standard incentive fee only applies to assets under management and would not reward the elimination of systematic risk.


There is some controversy concerning fees because a manager may have or should have other goals than simply earning a gross return. For example, the manager may/should be providing limited downside risk and diversification. The basic incentive fee does not reward this service.
作者: karoliukas    时间: 2012-4-2 11:14

Hedge fund managers with good track records:
A)
usually lower their fees to increase the assets under management.
B)
often demand higher incentive fees.
C)
generally continue to have good track records.


Managers with good track records often demand higher incentive fees. The concern for investors is whether the manager with a good historical record can continue to perform well enough to justify the higher fees.
作者: karoliukas    时间: 2012-4-2 11:15

For hedge funds, the basic incentive fee for managers may not be adequate because:
A)
a hedge fund manager may have several goals other than earning a high return, e.g., lowering downside risk.
B)
they are usually too low, e.g., 2% or less.
C)
a manager usually earns a minimum incentive fee regardless of the performance of the fund.


The rationale for incentive fees is obvious: encourage the manager to earn higher profits. There is some controversy concerning fees because a manager may have or should have other goals than simply earning a gross return. For example, the manager may/should be providing limited downside risk and diversification. The basic incentive fee does not reward this service.
作者: karoliukas    时间: 2012-4-2 11:15

An investor in private equity needs to prepare for capital calls, which:
A)
equal the funds promised at the initiation of the fund and usually occur during the first five years of the fund.
B)
is additional money requested by the sponsor as mezzanine financing after the commitment period.
C)
occurs at the beginning of the life of the fund before the commitment period.


This is the definition of capital calls. The investors in private equity usually make commitments at the initiation of the fund. During the first five years, or so, the sponsor gives the capital calls to the investors to get the promised funds.
作者: karoliukas    时间: 2012-4-2 11:15

In making investments in private equity, diversification is:
A)
possible by holding a number of positions, but usually only for investors with portfolios over $100 million.
B)
possible by holding a number of positions, and the size of the portfolio is not an issue.
C)
not possible to any investor.


Diversification through number of positions can be a problem since commitments are usually large. Usually investors with portfolios well over $100 million can invest in the necessary 5-10 investments needed for diversification.
作者: karoliukas    时间: 2012-4-2 11:16

Jill Tillman, CFA, has a client who wishes to invest in private equity. The client’s total portfolio is $2 million. The client wants to invest $250,000 in private equity, wants to keep the money invested for 7-10 years, and does not need liquidity. Tillman should:
A)
not invest the money because it represents too much of the client’s portfolio.
B)
invest the client’s money because private equity has the desired properties.
C)
not invest the money because private equity requires a longer holding period than specified by the client.


Private equity has low liquidity. The allocation to this class should be 5% or less with a plan to keep the money invested for 7-10 years. Since the client only has $2 million, the $250,000 (12.5%) requested investment is too large.
作者: karoliukas    时间: 2012-4-2 11:16

Compared to direct investing in commodities, indirect investing is usually considered to be:
A)
more convenient.
B)
less convenient.
C)
just as convenient, which is very convenient.


This is generally true, but indirect investment via companies that deal in the commodity may provide limited exposure to the performance of the commodity.
作者: karoliukas    时间: 2012-4-2 11:16

Direct investment in commodities has become easier for all investors because of the:
A)
increase in hedging activities of managers in firms that produce and/or deal in commodities.
B)
the increase in the number of commodity indices.
C)
increased number of hedge funds in these markets.


There has been an increase in the number of indices making it easier for smaller investors to invest in commodities and take derivative positions in commodities.
作者: karoliukas    时间: 2012-4-2 11:17

Compared to indirect investments in commodities, direct investments offer:
A)
more exposure to commodity returns but higher carrying costs.
B)
less exposure to commodity returns and higher carrying costs.
C)
less exposure to commodity returns but lower carrying costs.


Often indirect investments via investing in a company producing the commodity provide lower exposure because the managers hedge the very exposure the investor seeks. Direct investments in commodities incur costs of storage called carrying costs.
作者: karoliukas    时间: 2012-4-2 11:17

Jill Beaman, CFA, notices that for wheat futures there is a downward-sloping term structure of futures prices. Beaman should recognize that this would be associated with:
A)
normal backwardation and a positive roll return.
B)
normal backwardation and a negative roll return.
C)
contango and a positive roll return.


Normal backwardation, when it exists, produces a downward-sloping term structure of futures prices. Such a condition predicts a positive roll return. If the term structure is positive, which is a result of contango, the roll return would be negative.
作者: karoliukas    时间: 2012-4-2 11:18

With respect to a commodity futures contract, the collateral return:
A)
is the opportunity cost of storing the commodity.
B)
is highly correlated with the spot rate.
C)
represents the return on a fully hedged commodity position which should be approximately the risk-free rate.


The collateral return or “collateral yield” is the result of the no-arbitrage assumption that if an investor is long a contract and invests an amount in T-bills that will be equal to the amount required to pay for the required purchase at the maturity of the futures contract. Such a fully-hedge position should earn the risk-free rate.
作者: karoliukas    时间: 2012-4-2 11:18

Jill Beaman, CFA, has recorded the components of the return on a commodity futures contract. The return on the futures contract is $17, the spot return is $9, and the roll return is $5. What is the collateral return?
A)
$6.89.
B)
$31.00.
C)
$3.00.


Total return = spot return + collateral return + roll return.
Collateral return = total return − spot return − roll return.

$3 = $17 − $9 − $5
作者: karoliukas    时间: 2012-4-2 11:19

Jake Billingsly, CFA, and Paula Sloop, CFA, are investigating alternative investments for their clients. They have both institutional and private wealth clients, and Billingsly and Sloop have investigated the special issues that alternative investments raise for investment advisers of private wealth clients. When compared to institutional clients, Billingsly says that decision risk is higher for private wealth clients, and Sloop says that tax issues are generally more complex for private wealth clients.
Billingsly and Sloop review the principal classes of alternative investments, and they compare the features of real estate, private equity, commodity investments, hedge funds, managed futures, buy-out funds, infrastructure funds, and distressed securities. Some of their clients have been interested in venture capital funds, but Billingsly and Sloop think that buy-out funds may be a better alternative. Compared to venture capital, Billingsly says that buy-out funds tend to have lower leverage. Compared to venture capital, Sloop says that buy-out funds tend to have steadier cash flows.
Some of the institutional clients have held venture capital investments for several years. Billingsly and Sloop anticipate some of these investments are approaching the exit stage. As they look over the investments held by the institutional clients, they anticipate that the institutions’ investments in venture capital will most likely realize their value through one of four ways: i) the entrepreneurs buying out the venture capital investment from the venture capitalists, ii) a merger with another company, iii) an acquisition by another company, or iv) an initial public offering when the company in which the venture capital is invested and goes public (IPO).
Commodities are another area of interest. Many of both the private wealth clients and the institutional investors have asked if commodities would be good hedges against inflation. To accommodate the demand for inflation hedges, Billingsly and Sloop arrange for the clients to take long positions in energy, livestock, industrial metals, and precious metals. They want to use futures contracts that have the potential for the highest roll yield with a buy-and-hold strategy. They specifically focus on the topics of backwardation and contango and plot the roll returns for historical commodity futures over their respective lives. Billingsly and Sloop notice that the returns generally change over the life of each commodity futures contract and take this into account in their investment plans.
Billingsly and Sloop look at different types of hedge funds. They analyze the different styles and the fees the managers charge. They notice that one of the most popular hedge fund strategies attempts to identify overvalued and undervalued equity securities. The strategy takes long and short positions, but the goal of the fund is not necessarily to be market neutral or industry neutral. They find that the fee structures generally have three components. There is also a feature called a high water mark, and they discuss the rationale for the high water mark.Billingsly makes a statement about the decision risk and Sloop makes a statement about tax issues of private wealth clients compared to institutional clients. With respect to these statements:
A)
both Billingsly and Sloop are incorrect.
B)
Billingsly is correct and Sloop is incorrect.
C)
both Billingsly and Sloop are correct.


When compared to institutional clients, decision risk is higher for private wealth clients, and tax issues are generally more complex for private wealth clients. (Study Session 13, LOS 31.c)
Billingsly and Sloop compare buy-out funds to venture capital. With respect to the statements they make:
A)
Billingsly is correct and Sloop is incorrect.
B)
Billingsly is incorrect and Sloop is correct.
C)
both Billingsly and Sloop are correct.


Buy-out funds tend to use more leverage, so Billingsly is wrong, but Sloop is correct in that the cash flows are steadier. (Study Session 13, LOS 31.d)
Of the ways that Billingsly and Sloop estimate that firms invested in venture capital might exit and realize the value of their investment, the one that is not among the usual methods of exit is:
A)
entrepreneurs buying out the venture capital investment from the venture capitalists.
B)
an IPO.
C)
a merger with another company.


Mergers, acquisitions and IPOs are the usual methods. Entrepreneurs buying out investors is not a likely method of exit for the venture capitalist. (Study Session 13, LOS 31.h)
With a futures buy-and-hold strategy, a positive roll yield would be associated with a commodity yield curve that exhibits:
A)
backwardation, and the return decreases as it approaches maturity.
B)
contango, and the return increases as it approaches maturity.
C)
backwardation, and the return increases as it approaches maturity.


A roll yield from a buy and hold strategy is only possible when there is backwardation. The return increases as the contract approaches maturity. (Study Session 13, LOS 31.n)
The hedge fund style that Billingsly and Sloop find to be the most popular, and that they describe, would most likely be categorized as:
A)
hedged equity.
B)
convertible arbitrage.
C)
merger arbitrage.


Identifying overvalued and undervalued securities without focusing on making the fund market or industry neutral is called the hedge equity style. (Study Session 13, LOS 31.p)
The rationale for the high water mark is to:
A)
make sure managers get paid when the value of the fund increases steadily.
B)
prevent managers from getting overpaid when the value of the fund increases steadily.
C)
prevent managers from getting overpaid when the value of the fund oscillates.


The high water mark prevents a manager from getting paid twice for the positive increase in the fund’s value. If a fund goes from $10 million in value to $11 million in value, the managers should get paid an incentive fee on the $1 million move. If the $11 million is set as a high water mark, the manager will not be paid an incentive fee if the fund declines below $11 million and then rises back to that value. (Study Session 13, LOS 31.q)
作者: karoliukas    时间: 2012-4-2 11:19

Which of the following commodities is least likely to have returns that are positively correlated with inflation?
A)
Corn.
B)
Energy.
C)
Industrial metals.


Nonstorable agricultural commodities returns have returns that are negatively correlated to inflation. Storable commodities like energy and metals have returns that are positively correlated with inflation.
作者: karoliukas    时间: 2012-4-2 11:20

As an investment, the commodity energy is:
A)
nonstorable and a hedge against inflation.
B)
storable and a hedge against inflation.
C)
nonstorable but not a hedge against inflation.


Commodities that are not agricultural products tend to be storable and hedges against inflation. Energy is both storable and its return has been correlated with inflation.
作者: karoliukas    时间: 2012-4-2 11:20

Commodities can be categorized into storable and nonstorable. Which category, if any, should an analyst recommend as a hedge against inflation?
A)
Both storable and nonstorable commodities.
B)
Nonstorable commodities.
C)
Storable commodities.


Storable commodities like energy and metals have returns that are positively correlated with inflation. The positive correlation means the real return will tend to remain positive even when inflation increases.
作者: karoliukas    时间: 2012-4-2 11:21

A hedge fund that focuses on earning returns from mergers, spin-offs, and takeovers would be most accurately placed in which style category?
A)
Equity market neutral.
B)
Merger arbitrage.
C)
Hedged equity.


Merger arbitrage focuses on returns from mergers, spin-offs, takeovers, etc... For example, if company X announces it will acquire company Y, the manager might buy shares in Y and short X.
作者: karoliukas    时间: 2012-4-2 11:21

A hedge fund that takes positions in convertible bonds or convertible preferred stock and then takes other positions in the underlying stock would be most accurately placed in the style category:
A)
convertible arbitrage.
B)
equity market neutral.
C)
distressed securities.


Convertible arbitrage usually takes positions in convertible bonds or preferred stock as well as warrants, etc..., and then takes other positions in the underlying stock.
作者: karoliukas    时间: 2012-4-2 11:22

William Jones, CFA, has a client who wants to invest in a hedge fund that has the strategy of investing in equities and has among its goals the elimination of systematic risk. Jones has found two funds that he thinks are well run: the Marius Fund that uses an equity market neutral strategy and the Hera Fund that uses a hedged equity strategy. Given the client’s stated preferences, Jones should recommend:
A)
either fund.
B)
the Hera Fund only.
C)
the Marius Fund only.


Equity market neutral is usually the attempt to exploit price discrepancies through long and short positions. This strategy also has the goal of the systematic risks canceling because of the long and short positions. Hedged equity strategies take long and short positions in under and overvalued securities, respectively, like equity market neutral strategies. The difference is that hedged equity strategies do not focus on balancing the positions to eliminate systematic risks.
作者: karoliukas    时间: 2012-4-2 11:22

In the structure of a hedge fund, which of the following is least accurate concerning a lock-up period? A lock-up period:
A)
establishes a minimum investment period for each investment.
B)
establishes a cap on new investment.
C)
establishes exit windows.


A lock-up period is a common provision in hedge funds. Lock-up periods limit withdrawals by requiring a minimum investment period, e.g., 1-3 years, and designating exit windows. The rationale is to prevent sudden withdrawals that could force the manager to have to unwind positions.
作者: karoliukas    时间: 2012-4-2 11:23

With respect to the operations of a hedge fund, a high water mark is designed to:
A)
prevent a manager from allowing the fund to become so large that it cannot be managed efficiently and/or use its selected style effectively.
B)
prevent a manager from being paid twice for the same gains of the fund.
C)
put a cap on the assets-under-management fee.


The high-water mark provision is designed to prevent payment to a manager twice for the same gains. If a fund goes from $100 to $120 in value and the manager earns an incentive fee for the $20 gain, and then the fund’s value goes down to $110 and back to $120, the manager will not earn a fee for the gain from $110 back to $120. $120 was a “high water mark.”
作者: karoliukas    时间: 2012-4-2 11:23

Which of the following would be among the most common compensation structures for the manager of a hedge fund?
A)
An assets-under-management fee of 1.5% and an incentive fee of 20% of the dollar return over the initial investment.
B)
An assets-under-management fee of 20% and an incentive fee of 1.5% of the dollar return over the initial investment.
C)
An assets-under-management fee of 1.5% and a lock-up fee of 20%.


The most common compensation structure of a hedge fund consists of an assets-under-management fee, or AUM fee, of about 1%-2% and an incentive fee of 20% of “profits”. The definition of profit should be spelled out in the terms of the investment. It could be dollar return over the initial investment, for example, or the dollar return above the initial investment increased by some hurdle rate.
作者: karoliukas    时间: 2012-4-2 11:24

William Jones, CFA, has a client who wants to invest in a hedge fund. Jones might recommend a fund of funds instead of a single fund for all of the following reasons EXCEPT a fund of funds:
A)
would have a lower correlation with equity markets.
B)
would be more liquid.
C)
may serve as a better indicator of aggregate performance of hedge funds.


Fund of funds are usually considered good choices for individual investors because they offer diversification, usually offer more liquidity, and suffer from less survivorship bias thus they may serve as a better indicator of aggregate performance of hedge funds. One problem with fund of funds is that they are usually more correlated with equity markets than an individual fund, and this lowers their ability to diversify the overall portfolio.
作者: karoliukas    时间: 2012-4-2 11:25

Style drift and survivorship bias are often mentioned in the analysis of hedge fund performance. Which of the following statements is most accurate? Fund of funds can serve as better indicators of aggregate hedge fund performance than hedge fund indices because they tend to have a lower level of:
A)
both survivorship bias and style drift.
B)
survivorship bias only.
C)
style drift only.


A fund of funds may serve as a better indicator of aggregate performance of hedge funds (i.e., a better benchmark) because they suffer from less survivorship bias. If a fund of funds includes a fund that dissolves, the fund of funds includes the effect of that failure in the return of the fund of funds; however, an index may simply drop the failed fund. A fund of funds can suffer from style drift. This can produce problems in that the investor may not know what he/she is getting. Over time, managers may tilt their respective portfolios in different directions. It is not uncommon that two fund of funds who claim to be of the same style to have returns with a very low correlation.
作者: karoliukas    时间: 2012-4-2 11:26

With respect to hedge fund investing, the net return to an investor in a fund of funds would be lower than that earned from an individual hedge fund because of:
A)
no reason; fund of funds earn returns that are equal to those of individual hedge funds.
B)
both the extra layer of fees and the higher liquidity offered.
C)
the extra layer of fees only.


Fund of funds are usually considered good choices for individual investors because they offer diversification and usually more liquidity. One problem with fund of funds is that they usually have lower returns. This is a result from both the additional layer of fees and cash drag (resulting from a desire to have higher liquidity).
作者: karoliukas    时间: 2012-4-2 11:27

When evaluating hedge funds, special issues that complicate the process would include the fact(s) that:
A)
benchmarks are absolute return in nature and do not address other goals such as the elimination of systematic risk.
B)
benchmarks are designed to be both long and short in nature, but most hedge funds are long only.
C)
many hedge funds are absolute return vehicles for which no benchmark exists, and they can use long/short strategies while most benchmarks are long only in nature.


These are two problems in defining and creating benchmarks. One method for addressing problems in defining and creating benchmarks is the use of single and multi-factor models. Thus, factor models do not pose a complication but offer a solution.
作者: karoliukas    时间: 2012-4-2 11:27

When evaluating the performance of a hedge fund that uses leverage, the convention is to:
A)
not attempt to evaluate the fund because the existence of leverage makes such an assessment impossible.
B)
use an optimization model to determine the weights on the book and debt values.
C)
treat an asset as if it were fully paid to effectively “look through” the leverage.


The conventions for dealing with leverage is to treat an asset as if it were fully paid to effectively “look through” the leverage. When derivatives are included, the same principle of deleveraging is applied.
作者: karoliukas    时间: 2012-4-2 11:28

In distressed securities investing, a private equity fund that seeks to partner with the company in which the fund invests would most likely be called:
A)
a vulture fund.
B)
a high yield fund.
C)
an orphan equity fund.


A “vulture fund” is a private equity fund that uses an “active” approach where the fund or investor acquires positions in the company, and the investment gives some measure of control. The investor can then influence and assist the company and then acquire more ownership in the process of any reorganization. By providing services and obtaining a strategic position, the investors create their own opportunity.
作者: karoliukas    时间: 2012-4-2 11:28

In distressed securities investing, the strategy that focuses on trying to find opportunities where the prospects will improve is called:
A)
a momentum strategy. The goal is to find a firm that has “improvement momentum.”
B)
long-only value investing. Its returns depend on the fact that not all investors can invest in distressed securities.
C)
long-only value investing. Its returns depend on the fact that the market for distressed securities is efficient.


This is the basic principal of long-only value investing in distressed securities.
作者: karoliukas    时间: 2012-4-2 11:29

In alternative investments, distressed debt arbitrage seeks to earn a return from:
A)
an improvement in the prospects of the firm only.
B)
either the decline of the stock to zero or an improvement in the prospects of the firm.
C)
the decline of the stock to zero only.


Distressed debt arbitrage is the purchasing of a company’s distressed debt while selling the equities short. The investment can earn a return in two ways: 1) if the equity declines or goes to zero the investor gains from the short position but may continue to gain from the long bond position, 2) if the company’s prospects improve, because of the seniority of bond claims, the returns to bond holders should be greater than that of equity holders. The possibility of returns from two events provides a good market opportunity.
作者: karoliukas    时间: 2012-4-2 11:29

In distressed securities investing, event risk is:
A)
a source of diversification only.
B)
a source of return only.
C)
a source of both return and diversification.


Event risk refers to the fact that the return on a particular investment within this class typically depends on a particular event for a company, and that can provide good diversification.
作者: karoliukas    时间: 2012-4-2 11:30

In distressed securities investing, the fact that there can be cyclical supply and demand for these investments is associated with:
A)
arbitrage risk.
B)
J-factor risk.
C)
market liquidity risk.


Market liquidity risk refers to the low liquidity and the fact that there can be cyclical supply and demand for these investments.
作者: karoliukas    时间: 2012-4-2 11:34

In distressed securities investing, the type of risk that is from the human element associated with decisions determined in a court of law is called:
A)
event risk.
B)
decision risk.
C)
J-factor risk.


In J-factor risk, the “J factor” refers to the role that courts and judges can play in the return, and this involves an unpredictable human element.
作者: karoliukas    时间: 2012-4-2 11:37

Which of the following statements regarding the performance of managed futures is most accurate?
A)
Publicly traded managed futures have performed well on both a stand-alone and portfolio basis.
B)
Privately managed futures have not performed as well as publicly traded funds.
C)
Managed futures have exhibited a positive correlation to equities and bonds during up markets and a negative correlation during falling markets.


The primary benefit to managed futures is the significant diversification potential (i.e., improved Sharpe ratios). For example, some research has even shown that managed futures have exhibited positive correlation to equities and bonds during up markets and negative correlations during falling markets, although the performance seems to be related to specific strategies and time periods. In particular, private funds seem to add value whereas publicly traded funds have performed poorly both stand-alone and in portfolios.
作者: karoliukas    时间: 2012-4-2 12:54

Which of the following statements regarding how managed futures are typically structured is least accurate?
A)
Commodity pool operators can act as commodity trading advisors who actively manage a pool of futures contracts.
B)
Commodity trading advisors are responsible for actively buying and selling futures contracts.
C)
Commodity trading advisors hire commodity pool operators to manage the pool of futures contracts.


Managed futures programs are typically run by Commodity Pool Operators (CPOs). CPOs can themselves be commodity trading advisors (CTAs) or will hire CTAs to actually manage all or part of the pool. In the United States, both must be registered with the U.S. Commodity Futures Trading Commission and the National Futures Association. Some CTAs may choose to work independently outside of a public or private CPO structure.
作者: karoliukas    时间: 2012-4-2 12:55

A commodity pool operator (CPO) is deciding whether or not to hire a particular commodity trading advisor (CTA). The CTA has a good track record of performance and often exhibits negative correlation with equities thus enhancing overall performance in down markets. Which of the following statements regarding whether or not the CPO should hire the CTA is most accurate? The CPO should:
A)
not hire the CTA if their beta relative to other CTAs managing the pool of futures contracts is too low, as this indicates that the CTA’s past returns are low relative to the pool of operators.
B)
hire the CTA only if its beta and correlation have been considered in determining its risk relative to the pool of operators.
C)
not hire the CTA if their past performance is highly correlated with the pool of operators, as this indicates their volatility relative to the pool is high.


In selecting a CTA to include in the portfolio, the manager should consider risk. For example, even though CTAs often exhibit negative correlations with equities, correlations among CTAs themselves can range anywhere from significantly positive (i.e., close to 1.0) to only modestly positive. In addition, the beta that relates the performance of an individual CTA to a fund of CTAs can be a good indicator of future risk-adjusted performance. Just as equity beta relates the volatility (risk) of an individual equity security or portfolio to the overall equity market, the CTA beta measures the risk of the individual CTA relative to a fund of CTAs.
作者: karoliukas    时间: 2012-4-2 12:55

Which of the following statements regarding what a managed futures trading strategy is called and how it is described is least accurate?
A)
Unsystematic – the commodity trading advisor tracks specific commodity futures contracts and uses trading rules to signal when to buy and sell the contract.
B)
Systematic – the commodity trading advisor trades according to market trends and may even use a contrarian strategy which trades against the market trend.
C)
Discretionary – the commodity trading advisor uses their own discretion to buy futures contracts they feel are over or undervalued.


Commodity trading advisor (CTA) strategies can be described as systematic or discretionary (not unsystematic). CTAs that specialize in systematic trading strategies typically apply sets of rules to trade according to short, intermediate, and/or long-term trends. They may also trade counter to trends in a contrarian (against the trend) strategy.
A discretionary trading strategy is based on the discretion of the CTA, in the same way that any active manager seeks value.
Managed futures can also be classified according to the markets in which they trade. They apply systematic or discretionary trading strategies in financial markets, currency markets, or diversified markets. In financial markets, they trade in financial (i.e., interest rate) and currency futures, options, and forward contracts. Those that specialize in currency markets trade exclusively in currency derivatives. A fund that trades in diversified markets trades in all the financial derivatives markets described as well as commodity derivatives.



欢迎光临 CFA论坛 (http://forum.theanalystspace.com/) Powered by Discuz! 7.2