Alternative Investments【Reading 66】Sample investment, 2012, company, assets

kim226

The per-share value of an investment company’s assets minus its liabilities is called the:

A) discount.

B) net asset value.

C) current market value.

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The net asset value (NAV) of an investment company is calculated as assets minus liabilities, stated on a per-share basis.

mouse123

Which of the following statements about exchange-traded funds (ETFs) and closed-end funds is least accurate?

A) ETFs can only trade in the secondary market, while closed-end funds can be redeemed in cash by the manager of the underlying index.

B) ETFs attempt to track the performance of a stock index, but closed-end funds usually do not.

C) Because of arbitrage, shares of an ETF rarely trade at a premium or discount to NAV as shares of a closed-end fund often do.

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While both ETFs and closed-end funds trade on stock exchanges, only ETFs can be redeemed in cash. The remaining statements are true.

mouse123

Closed-end funds and exchange traded funds (ETFs) have which of the following characteristics in common?

A) Both closed-end funds and ETFs stand ready to redeem shares.

B) The structures of closed-end funds and ETFs prevent shares from trading at a significant premium or discount to NAV.

C) Shares of both closed-end funds and ETFs trade in the secondary market.

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Only ETFs stand ready to redeem shares; investors in closed-end funds can only divest through trading in the secondary market. The in-kind redemption process prevents ETFs from trading at significant premiums or discounts. There are no barriers in the structure of closed-end funds to prevent share prices deviating from NAV. Shares of both closed-end funds and ETFs do trade in the secondary market.

mouse123

Which of the following statements regarding exchange traded funds (ETFs) is NOT correct?

A) ETF investors own shares of the underlying investment company.

B) ETFs are funds that can be traded in a stock market.

C) ETF shares can be sold short or margined.

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ETF shares trades in the stock market just like traditional equities, and can be sold short or margined. ETF investors own shares of the underlying investment portfolio, not of the company.

mouse123

A commodities investor establishes a $10 million collateralized futures position. If the futures are worth $10.5 million three months later, and Treasuries have an annualized return 4.75% during the period, the total gain on the position is:

A) $975,000.

B) $618,750.

C) $500,000.

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The total return on the position equals the gain on the futures position plus the return on the Treasury bills: $500,000 + ($10,000,000 × 4.75% × (90 / 360)) = $618,750.

mouse123

The total return on a collateralized futures position is composed of the change in:

A) futures price plus the interest income on the futures.

B) Treasuries price plus the interest income on the futures.

C) futures price plus the interest income on the Treasuries.

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The total return on the position equals the gain or loss on the futures position plus the interest earned on the Treasury position.

mouse123

An analyst discussing collateralized commodity futures states the following:
Statement 1: The sources of return on a collateralized commodity futures position are changes in the futures contract price and the interest earned on the government securities held.
Statement 2: To establish a collateralized commodity futures position, an investor purchases a futures contract and an amount of government securities equal to the current market value of the futures position.
Are these statements CORRECT?

Statement 1

Statement 2

A) Correct Incorrect

B) Incorrect Correct

C) Correct Correct

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Statement 1 is correct. The total return on a collateralized commodity futures strategy is the return from the futures position plus the interest from the government securities. Statement 2 is incorrect. The amount of government securities to purchase is equal to the futures contract value, the futures price per unit times the number of units covered by the futures contract. Remember that the market value of the futures position is zero at contract initiation.

mouse123

A portfolio manager takes a long position in commodities futures for a set amount of underlying value, and then simultaneously invests the same amount in government securities. This strategy is called a:

A) margin position.

B) collateralized futures position.

C) total-return strategy.

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A margin position in the commodities market involves buying or selling commodities futures by posing margin. The term “total-return strategy” could apply to any number of investment strategies that seek income plus capital appreciation. A collateralized futures position involves the simultaneous investment in futures and in government securities with a value equal to that of the futures position. The investor realizes a return equal to the change in price of the futures plus the return on the government securities.

mouse123

The total return on a collateralized commodity futures position is equal to the return on a:

A) short futures position plus the interest income earned on Treasury bills.

B) long futures position plus the interest income earned on Treasury bills minus the increase in spot prices of the commodity.

C) long futures position plus the interest earned on Treasury bills.

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The total return on collateralized commodity futures is the sum of the increase in the futures price and the interest on the T-bills used to collateralize the futures position.

mouse123

Money managers and individual investors can indirectly participate in the commodities market through all of the following investment vehicles EXCEPT:

A) futures contracts.

B) trading commodities in small denominations.

C) stocks of companies producing a commodity.

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Trading the commodities themselves is direct participation. Investors can participate indirectly though futures contracts or certain commodity-linked equities.