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Alternative Investments【 Reading 33】习题精选

Which of the following commodities is very difficult to store and transport?
A)
Oil.
B)
Corn.
C)
Natural gas.



Natural gas is expensive to store and demand in the United States peaks during high periods of use in the winter months. In addition, the price of natural gas is different for various regions due to high international transportation costs.

Which of the following commodities is an example of constant production and seasonal demand?
A)
Natural gas.
B)
Corn.
C)
Oil.



Natural gas is an example of a commodity with constant production, but seasonal demand.

TOP

Jill Mahoney, CFA, has several long commodity forward positions for her clients. The underlying commodities have active lease markets. Her model predicts that the lease rates on the commodities underlying her forward contracts will increase in the near future. If the other variables such as the expected present and future spot price remain unchanged, Mahoney would expect the value of the long forward positions to:
A)
increase.
B)
decrease.
C)
be unaffected.



The commodity forward price for time T with an active lease market is expressed as:

where the commodity current spot rate is S0 and is equal to the risk-free rate less the lease rate. The lease rate, , is income earned if the commodity is loaned out. Thus, an increase in lease rate, , will lower F0,T.

TOP

Patsy Cain works in the alternative investment division for a global investment bank. This morning she received a questionnaire from Michael Garland, a computer-industry executive looking for someone to handle a portion of his investment portfolio. Cain had sent him the questionnaire a week ago in an effort to determine whether he was a good candidate for money management.

When asked about his investment experience, Garland responded that he has been actively investing in a variety of asset classes for more than 30 years, with considerable success overall. Tax issues are a concern, as Garland receives a large amount of dividend income from the company he owns and he also operates several charitable foundations funded by both himself as well as outside donors.

Garland also wrote that he does not like gambling or tobacco companies and can afford to tie up his money for no more than five years because he intends to retire at that time.
After Cain returns the questionnaire, Garland calls for an appointment. When he meets with Cain, he explains that another manager has done a fine job with his stocks and bonds, but he is not happy with the performance of his alternative investments and wants her to manage them. Cain still is not sure what kind of investments would be best for Garland, so she asks him to rank his investment goals in order of importance. They are:
  • Returns.
  • Diversification.
  • Ease of tracking.
Garland is very interested in commodities. He owns a chemical company that makes food additives and flavorings, and he uses a lot of corn and other grains in his products. Rather than buy grains at market prices, Garland would like to purchase quantities of grain for his own use, store it in his own warehouse, and sell any excess. Alternatively, he could use futures contracts to guarantee prices for purchases at a future date.
Cain decides that Garland is a likely candidate for commodity investments. When she suggests futures to him, Garland explains that he got burned on a natural-gas investment once and is nervous about commodities because of their price volatility. Cain advises him to stick with oil futures rather than natural-gas futures, offering four reasons for the advice:
  • "Oil prices are similar worldwide, while natural-gas prices differ by region."
  • "Seasonal trends in oil prices are well documented."
  • "Forward prices for oil tend to be less volatile than prices for natural gas."
  • "Oil is easier to transport than natural gas."
Garland is also interested in hedge funds, though he is concerned about their potential volatility. Cain makes a mental note to assemble a list of hedge funds with high Sharpe ratios. Hedge funds appeal to Garland mostly because of their willingness to take both long and short positions. He postulates that a hedge fund that takes only long positions might as well be a mutual fund. Which of the following statements about oil and natural-gas futures is least accurate?
A)
"Forward prices for oil tend to be less volatile than prices for natural gas."
B)
"Oil prices are similar worldwide, while natural-gas prices differ by region."
C)
"Seasonal trends in oil prices are well documented."



Oil prices do not follow seasonal trends, though natural-gas prices do. Both remaining statements are true. (Study Session 13, LOS 33.a)

Based only on Garland's three stated investment goals, his best option is:
A)
publicly traded real-estate equity units.
B)
oil futures.
C)
a market-neutral hedge fund.



Real estate, private equity, and hedge funds can all boost returns, though commodities are more often used as a diversification tool. Real estate and hedge funds offer substantial diversification benefits, but private equity investments tend to move with the stock market. Hedge fund performance is difficult to track, but the changing value of a publicly traded real-estate fund is easy to track. While real estate investments are not the best return generators, they have performed well in recent years, and they are very good for diversification. As such, the real estate equity units represent the best option. (Study Session 13, LOS 31.d)

In selecting hedge funds for Garland, Cain should avoid:
A)
hedged-equity funds.
B)
emerging-market funds.
C)
merger-arbitrage funds.



Most emerging markets do not permit short positions, and Garland only wants hedge funds that take short positions. Both remaining fund strategies generally involve long-short combinations. (Study Session 13, LOS 31.p)

With regard to measuring the volatility of hedge funds, which of the following is least likely to be a limitation of the Sharpe ratio?
A)
funds with large private-equity positions will appear less volatile than they actually are.
B)
its time-dependency makes volatility appear higher over long periods.
C)
it is not effective for selecting good hedge-fund investments.



The Sharpe ratio is time-dependent, but the ratio rises when calculated using longer time periods, suggesting that volatility appears lower, not higher. Both remaining statements reflect limitations of the Sharpe ratio. (Study Session 13, LOS 31.s)

Based on Garland's response to the questionnaire, the issue most likely to cause Cain NOT to take him on as a client is:
A)
suitability.
B)
decision risk.
C)
tax complexities.



Garland's responses suggest he is sophisticated and wealthy, quite suitable for alternative-asset investments. His private-equity ownership and complex tax situation are issues Cain must address, but they are not uncommon, and certainly no reason not to take him on as a client. That leaves decision risk. Garland's answers gave no hint about whether he is loss-averse or likely to make quick and emotional decisions. Since both remaining answers are not reasons for concern, the biggest worry must be the information he did not provide relating to decision risk. (Study Session 13, LOS 31.c)

Regarding Garland's plan to purchase grain for his company's use, Cain should begin by advising him about:
A)
convenience yield.
B)
lease rates.
C)
storage costs.



Garland is interested in selling the excess grain, not lending it, so lease rates are not relevant. Storage costs may be an issue, though in some cases the company could have no measurable storage costs. However, the company is likely to know its own costs, and there is probably little reason for Cain to advise Garland on this topic. The convenience yield reflects the value of a commodity held by an investor for nonmonetary return, and affects the price an investor should pay for a commodity. (Study Session 13, LOS 33.a)

TOP

It is currently August and the spot price of soybeans is $6.02/bushel. Storage costs for soybeans on a continuously compounded basis are $0.39/bushel annually. The appropriate continuously compounded interest rate is 8%. If a soybean farmer has just finished harvesting his crop but would like to sell half of the crop in November and half in February by going short futures contracts, which of the following statements is most accurate? The farmer should store his crop only if the November futures contract price is at least:
A)
$6.77/bushel and the February futures contract price is at least $6.27/bushel.
B)
$6.14/bushel and the February futures contract price is at least $6.27/bushel.
C)
$6.24/bushel and the February futures contract price is at least $6.47/bushel.


Calculate the price of the November (3-month) and February (6-month) forward prices using the following pricing formula which accounts for storage costs:
Storage costs (λ) = .39/6.02 = 6.48% Forward prices (FO,T) = SOe(RF+λ)T   FO,0.25 = 6.02e(0.08 + 0.0648)(.25) = $6.24 FO,0.50 = 6.02e(0.08 + 0.0648)(.50) = $6.47
The soybean farmer would only be willing to store half the crop until November if the November futures contract price is at least $6.24/bushel. Similarly, the soybean farmer would only be willing to store the other half of the crop until February if the February futures contract price is at least $6.47/bushel.

TOP

Which of the following statements regarding lease rates is least accurate? The lease rate is:
A)
earned whether or not the underlying commodity is actually loaned.
B)
the amount of interest a lender of a commodity requires.
C)
the amount of return the investor requires who has bought and then lent a commodity.



The lease rate can only be earned by actually lending the underlying commodity.

TOP

A producer of soybean meal and soybean oil wishes to hedge with soybean contracts. The convenience yields and storage costs for soybean meal and soybean oil are significantly different from that of soybeans. Which of these differences, if any, could be a source of basis risk?
A)
Both convenience yields and storage costs.
B)
Convenience yields only.
C)
Neither convenience yields nor storage costs.



Basis risk is the result of imperfect hedges. Differences in both convenience yields and storage costs would result in increased basis risk.

TOP

Soybeans have seasonal production but constant demand throughout the year. Soybean forward contracts currently have an upward sloping forward curve. Under these conditions, we would expect the forward curve to:
A)
decrease until harvest time and then drop more sharply at harvest time.
B)
increase until harvest time and then drop sharply at harvest time.
C)
decrease until harvest time and then increase sharply at harvest time.



Soybeans are produced in the fall of every year, but they are consumed throughout the year. In order to meet consumption needs, soybeans must be stored. Thus, interest and storage costs need to be considered. Soybean prices will fall as it is being harvested and then rise to reflect the cost of storage over the next 12 months until it is harvested again. Thus the forward curve is increasing until harvest time and then it drops sharply and slopes upward again after harvest time is over.

TOP

Jill Mahoney, CFA, has noticed that the forward prices for a given commodity have exhibited contango. Regulatory changes concerning the storage of the underlying commodity have recently increased the storage costs. This will most likely lead to:
A)
a steeper forward curve and continued contango.
B)
a flatter forward curve but contango will still exist.
C)
a flatter forward curve and possibly normal backwardation.



Storage costs can produce contango, which means the distant delivery prices for futures exceed spot prices in the commodity market. An increase in the storage costs will increase the futures prices and the slope of the forward curve.

TOP

Jill Mahoney, CFA, trades commodity forward contracts for her clients. The underlying commodities have active lease markets. The prices of some of the forward contracts appear lower than that given by her valuation model based upon the risk-free rate and borrowing rates. One explanation for this is that Mahoney has:
A)
included a convenience yield that is too high.
B)
included storage costs that are too low.
C)
not included the convenience yield.



A commodity range of no-arbitrage prices can be calculated as follows:



Where λ is the storage costs, r is the risk-free rate, and c is the convenience yield. The upper bound depends on storage costs but not on the convenience yield. The lower bound adjusts for the convenience yield and therefore explains why actual forward prices may appear lower at times when the convenience yield is not accounted for as in Mahoney's model which is only considering the upper bound.

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