Hi,
Going through CFA past exam questions-and it would be great-if somebody could give me the following clarifs
2006-Essay Questions
Q-10-B
In your presentation you state that an appropriate implied hedge fund hurdle rate,
for hedge funds as a group, is 125 basis points above cash returns. Why is the
hurdle rate so low
The Answer states it is due to addition of hedge funds to a portfolio may reduce the total
portfolio volatility- But isnt the key-that hedge funds are market neutral-and give a decent absolute returns in bear or bull markets.
Q-2-C
Recommend the most appropriate portfolio allocation for Kennedy based upon the
results of the Monte Carlo simulation
Answer-Moderate Portfolio-foremost objective of the portfolio is to have funds available to provide for the spending needs for Kennedy’s 20-year planning horizon. But the value of the Aggressive portfolio at 10th & 5th percentile is zero-indicating it too woul meet the spending needs for Kennedy’s 20-year planning horizon. Also the value of the moderate portfolio at 5 & 10th percentile is very low. So wont Aggressive portfolio be the best choice on risk adjusted basis.
