Question 116

Which statement about option valuation is least accurate?

A)    Prior to maturity, out-of-the-money options have no value.

B)   The value of an option is its time value plus its intrinsic value.

C)   The maximum loss for the buyer of a call option is the premium paid.

D)   If the stock price is lower than the strike price at expiration, a put option is worth the difference between the stock price and the strike price.

Because of survivorship bias, hedge fund data is likely to:

A)    overstate returns and overstate risk.

B)   understate returns and overstate risk.

C)   understate returns and understate risk.

D)   overstate returns and understate risk.

Question 118

Which statement is the least accurate analysis of a mutual fund equity investment strategy?

A)    Global funds managed by U.S. investment companies often contain U.S. stocks.

B)   Index funds attempt to match the performance of a stock index and usually charge low fees.

C)   Sector funds may set performance targets drastically different than the overall market’s expected returns.

D)   Stable value funds invest in long-term fixed-income securities with regular cash flows and a steady interest rate.

Which of the following statements is least likely to be a similarity between venture capital and distressed securities investments?

A)    They are both likely to have negative cash flows for a significant period of time.

B)   They are both subject to mispricing.

C)   Both require a long time horizon to generate expected returns.

D)   Both require intensive investor participation in the company’s affairs.〕〕

Question 120

A highly risk-averse investor with a long time horizon who worries about inflation is most likely to invest in:

A)    long-term corporate bonds.

B)   commingled real estate funds.

C)   market-neutral hedge funds.

D)   venture capital limited partnerships.

[此贴子已经被作者于2008-11-7 17:15:02编辑过]

答案和详解如下！

Question 116

Which statement about option valuation is least accurate?

A)    Prior to maturity, out-of-the-money options have no value.

B)   The value of an option is its time value plus its intrinsic value.

C)   The maximum loss for the buyer of a call option is the premium paid.

D)   If the stock price is lower than the strike price at expiration, a put option is worth the difference between the stock price and the strike price.

The correct answer was A) Prior to maturity, out-of-the-money options have no value.

While out-of-the-money options have no intrinsic value, they still have time value prior to maturity. The remaining statements are true.

This question tested from Session 17, Reading 73, LOS f

Question 117

Because of survivorship bias, hedge fund data is likely to:

A)    overstate returns and overstate risk.

B)   understate returns and overstate risk.

C)   understate returns and understate risk.

D)   overstate returns and understate risk.

The correct answer was D) overstate returns and understate risk.

Survivorship bias is very strong for hedge funds and contributes to the overstatement of performance and the understatement of risk.

This question tested from Session 18, Reading 76, LOS l, (Part 2)

Question 118

Which statement is the least accurate analysis of a mutual fund equity investment strategy?

A)    Global funds managed by U.S. investment companies often contain U.S. stocks.

B)   Index funds attempt to match the performance of a stock index and usually charge low fees.

C)   Sector funds may set performance targets drastically different than the overall market’s expected returns.

D)   Stable value funds invest in long-term fixed-income securities with regular cash flows and a steady interest rate.

The correct answer was D) Stable value funds invest in long-term fixed-income securities with regular cash flows and a steady interest rate.

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.

This question tested from Session 18, Reading 76, LOS b

Question 119

Which of the following statements is least likely to be a similarity between venture capital and distressed securities investments?

A)    They are both likely to have negative cash flows for a significant period of time.

B)   They are both subject to mispricing.

C)   Both require a long time horizon to generate expected returns.

D)   Both require intensive investor participation in the company’s affairs.〕〕

The correct answer was A) They are both likely to have negative cash flows for a significant period of time.

If the distressed company is weak due to too much leverage, for example, but is otherwise operationally sound, investors in the distressed company would invest because of the potential for positive cash flows after a restructuring. Venture capital investments, on the other hand, would almost always require a significant period of time before generating positive operating cash flows.

This question tested from Session 18, Reading 76, LOS o

Question 120

A highly risk-averse investor with a long time horizon who worries about inflation is most likely to invest in:

A)    long-term corporate bonds.

B)   commingled real estate funds.

C)   market-neutral hedge funds.

D)   venture capital limited partnerships.

The correct answer was B) commingled real estate funds.

Highly risk-averse investors will avoid hedge funds and venture capital, and real estate offers a hedge against inflation they cannot get from corporate bonds.

This question tested from Session 18, Reading 76, LOS d, (Part 1)

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