Q6. Which of the following represents the best mitigation of Cegelski’s risk exposures? Corby and Neiberlein should recommend that:

A)   Cegelski enter into an exchange fund agreement.

B)   Cegelski enter into an equity swap.

C)   Cegelski construct a completion portfolio.

Q7. Which of the following best represents Cecil’s risk exposures?

A)   Cecil’s main exposures are to systematic risk.

B)   Cecil’s main exposures are to systematic risk, unsystematic risk, and liquidity risk.

C)   Cecil’s main exposures are to systematic risk and unsystematic risk.

Q8. Which of the following would be the least appropriate method of mitigating Cecil’s risk exposures?

A)   An outright sale of Irvington Beverage Distributors stock.

B)   Constructing a completion portfolio.

C)   Entering into an exchange fund agreement.

Q9. Regarding Corby’s statement concerning managed futures:

A)   Corby is correct.

B)   Corby is incorrect because the risk of managed futures is higher than that of equities.

C)   Corby is incorrect because the correlation of managed futures with equities is quite high.

答案和详解如下：

Q6. Which of the following represents the best mitigation of Cegelski’s risk exposures? Corby and Neiberlein should recommend that:

A)   Cegelski enter into an exchange fund agreement.

B)   Cegelski enter into an equity swap.

C)   Cegelski construct a completion portfolio.

Correct answer is B)

Cegelski should enter into an equity swap where he would exchange the return on Reston Technologies stock for the return on some other asset in a private, over-the-counter contract. He does not want to send a negative signal by selling the stock outright. An exchange fund would not allow him to sell his shares in three years. In an exchange fund, the investor contributes their shares to a common diversified pool of stock that similar investors have contributed to. The investor makes a commitment to keep their shares in the fund for a period of time (usually seven years) after which they can withdraw a proportionate share of the fund. He does not currently have the liquidity necessary to enter into a completion fund. He also does not want to increase his risk so he should not borrow against his Reston shares to enter the completion fund. To raise the funds to invest in a completion fund, the individual borrows funds against his or her stock or uses the dividends from his or her current stock. In the former case, the increased leverage increases the investor’s risk. In the latter case, obtaining the funds necessary to invest in the completeness fund may take substantial time. Cegelski has stated that he wants to diversify in a timely manner.

Q7. Which of the following best represents Cecil’s risk exposures?

A)   Cecil’s main exposures are to systematic risk.

B)   Cecil’s main exposures are to systematic risk, unsystematic risk, and liquidity risk.

C)   Cecil’s main exposures are to systematic risk and unsystematic risk.

Correct answer is B)

Cecil has exposure to systematic risk, unsystematic risk, and liquidity risk. Irvington Beverage Distributors is a private firm so he cannot liquidate his ownership position quickly. He also has unsystematic risk because his portfolio is poorly diversified.

Q8. Which of the following would be the least appropriate method of mitigating Cecil’s risk exposures?

A)   An outright sale of Irvington Beverage Distributors stock.

B)   Constructing a completion portfolio.

C)   Entering into an exchange fund agreement.

Correct answer is A)

Cecil cannot easily sell his ownership position because Irvington Beverage Distributors is a private firm. Furthermore, he has stated that he would like to minimize his taxes and an outright sale is usually the most tax inefficient method of diversifying a portfolio.

Q9. Regarding Corby’s statement concerning managed futures:

A)   Corby is correct.

B)   Corby is incorrect because the risk of managed futures is higher than that of equities.

C)   Corby is incorrect because the correlation of managed futures with equities is quite high.

Correct answer is A)

Corby is correct. The standard deviation of managed futures is generally less than that of equities but greater than that of bonds. The correlation between managed futures and equities is low and often negative.

thx

Thank you!