wanganjie

 

The correct answer is A

Without restrictions on withdrawals, funds would have to have cash available to meet the demand for withdrawals. Cash has a lower return than other investments. The SEC does not have restrictions on withdrawals.

wanganjie

 

The correct answer is A

Typical arrangements pay the manager a base fee, usually around 1% of assets, plus an incentive fee proportional to profits.

wanganjie

 

3、The fee structure of a hedge fund may lead to biases in performance data because:

A) hedge fund managers are not required to disclose information regarding fee structures.

B) hedge fund managers charge higher fees than managers of traditional funds.

C) fund managers have incentives to take big risks if past performance has been poor.

D) fund manager compensation can vary widely from year to year.

wanganjie

 

The correct answer is C

Hedge fund managers would report performance net of fees if at all. Hedge fund managers have the potential to earn more than managers of traditional funds, but this does not bias performance data. Hedge fund managers typically receive a modest base fee (1%) and then a large incentive fee based upon performance. If past performance has been poor, then fund managers feel they have “nothing to lose” and may invest more aggressively.

wanganjie

 

4、With respect to requiring a 30-day notice and only being able to make withdrawals on only specific days per year, which of the following is/are usual restrictions on hedge funds?

A) Being able to make withdrawals on only specific days per year. 

B) Both requiring a 30-day notice and being able to make withdrawals on only specific days per year. 

C) Requiring a 30-day notice only. 

D) Neither requiring a 30-day notice nor being able to make withdrawals on only specific days per year. 

wanganjie

 

The correct answer is D

Hedge funds are private investment vehicles for qualified investors. Being private allows the hedge fund to escape regulatory oversight, but means the hedge fund cannot advertise to attract new funds. In contrast, mutual funds can advertise to the general public. Note that the other statements are false. Hedge fund portfolios tend to be more concentrated than mutual funds, both hedge funds and mutual funds tend to invest according to a specific approach, and both hedge funds and mutual funds are permitted to use leverage, although mutual funds are typically limited in the amount of leverage they can use (i.e., up to 33% of net assets).

wanganjie

 

AIM 3: Analyze the implications the incentive structure of hedge funds have on the risk and performance of the funds.

1、Which of the following statements is true concerning the compensation paid to a fund manager? A fee based upon:

A) profits is asymmetric and is the usual fee structure for hedge funds. 

B) profits earned is symmetric and is the usual fee structure for hedge funds. 

C) assets under management is asymmetric and the usual fee structure for hedge funds. 

D) assets under management is asymmetric and is the usual fee structure for mutual funds. 

wanganjie

 

The correct answer is A

This is the only true statement. Fees based upon profits are asymmetric and are usually the fee structure for hedge funds.

wanganjie

 

2、Managers of hedge funds are typically compensated by:

A) a base management fee, based on the value of assets under management, plus an incentive fee, based on profits. 

B) a management fee, based on the net change in value of the assets during the year.  

C) an incentive fee, based upon some performance goal set at the beginning of the fiscal year.

D) an incentive fee, paid only if performance exceeds a “high water mark”. 

wanganjie

 

The correct answer is A

Hedge funds may not engage in advertising of any kind. Hedge funds may or may not utilize hedging strategies. Hedge funds may make macroeconomic bets, but this is not because of their agreement to adhere to certain guidelines. The main reason for hedge funds to organize under section 3 (c) (1) is to gain exemption from most SEC regulations.