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- Question 1 of 30
1. Question
What would form when an investor could assemble a portfolio that delivered exactly the cash flows they desired on any possible date?
CorrectA complete market in this idealized example will emerge when investors could build a portfolio that delivered precisely the cash flows they needed on any possible date
IncorrectA complete market in this idealized example will emerge when investors could build a portfolio that delivered precisely the cash flows they needed on any possible date
- Question 2 of 30
2. Question
If there is an outcome of the economy that specifies the realized values of all economically significant variables, which choice perfectly describes it?
CorrectA state of nature is a precise and detailed definition of an economic result that specifies the realized values of all economically relevant variables.
IncorrectA state of nature is a precise and detailed definition of an economic result that specifies the realized values of all economically relevant variables.
- Question 3 of 30
3. Question
An investor in a 40% tax bracket earns an after-tax return of 9%. What must be the investor’s pre-tax return?
CorrectInvestor’s pre-tax return 15%,found as 9% divided by 0.6.
IncorrectInvestor’s pre-tax return 15%,found as 9% divided by 0.6.
- Question 4 of 30
4. Question
Consider an investor at a current 35 percent tax rate that anticipates a 20 percent reduced tax rate in 10 years (after retirement). If the investor puts money in a wrapper offering tax deduction and tax deferment, what will be the after-tax rate of the investor’s annual return if the pre-tax rate is 6 percent and the time horizon is 10 years?
CorrectThe future value (1.791) is multiplied by the after-tax ratio (1 – 0.20)/ (1 – 0.35) = 1.231 to generate 2.2041. The 10th root of 2.2041 followed with the subtraction of 1 generates the answer that the after-tax rate is 8.22%.
IncorrectThe future value (1.791) is multiplied by the after-tax ratio (1 – 0.20)/ (1 – 0.35) = 1.231 to generate 2.2041. The 10th root of 2.2041 followed with the subtraction of 1 generates the answer that the after-tax rate is 8.22%.
- Question 5 of 30
5. Question
Which of the following is a private equity firm, which often serves as the general partners of private equity funds, usually invests its own capital and sometimes owns the underlying undertakings fully?
CorrectPrivate equity firms such as Kohlberg Kravis Roberts & Co. (KKR)
IncorrectPrivate equity firms such as Kohlberg Kravis Roberts & Co. (KKR)
- Question 6 of 30
6. Question
Which of the following are the non-listed, typically small businesses that seek to grow through investments from private equity funds or private equity firms?
CorrectUnderlying business enterprise in private equity businesses are the unlisted, typically small businesses that seek to grow through investment from private equity funds or private equity firms
IncorrectUnderlying business enterprise in private equity businesses are the unlisted, typically small businesses that seek to grow through investment from private equity funds or private equity firms
- Question 7 of 30
7. Question
Why there is mezzanine debt referred to as mezzanine?
CorrectBecause it is placed between the equity floor and the ceiling of the senior secured debt in the capital structure of a business.
IncorrectBecause it is placed between the equity floor and the ceiling of the senior secured debt in the capital structure of a business.
- Question 8 of 30
8. Question
How investors can protect themselves from losses that exceed their investment?
CorrectLimited liability is investor protection against losses that exceed their investment.
IncorrectLimited liability is investor protection against losses that exceed their investment.
- Question 9 of 30
9. Question
What do we call it if the portion of the incentive fees for managers is held in a separate account until the entire fund is liquidated?
CorrectIn escrow agreement, Until the entire fund is liquidated, the portion of the incentive fees of the manager is held in a separate account.
IncorrectIn escrow agreement, Until the entire fund is liquidated, the portion of the incentive fees of the manager is held in a separate account.
- Question 10 of 30
10. Question
What is the absolute priority rule?
CorrectAn absolute priority rule is a specification of which claims are satisfied first, second, third in a liquidation process and so on in receiving distributions.
IncorrectAn absolute priority rule is a specification of which claims are satisfied first, second, third in a liquidation process and so on in receiving distributions.
- Question 11 of 30
11. Question
When two or more LBO companies collaborate in cost-sharing, present a business plan, and contribute capital?
CorrectTwo or more LBO companies work together in a club deal to share expenses, present a business plan, and contribute resources to the deal.
IncorrectTwo or more LBO companies work together in a club deal to share expenses, present a business plan, and contribute resources to the deal.
- Question 12 of 30
12. Question
Harry is a Hedge fund investor. In which of the following he should invest?
CorrectHedge fund investors invest in stable companies with proven risk management and strong operational risk controls.
IncorrectHedge fund investors invest in stable companies with proven risk management and strong operational risk controls.
- Question 13 of 30
13. Question
TTMAR Hedge Fund has a fee arrangement of 1.5 and 30 at the start of the year, with no hurdle rate and a NAV of $200 million. The NAV is $253 million at year-end, before fees. Assuming management fees are calculated and distributed annually on start-of-year NAVs, find the annual management fee and the incentive fee.
CorrectThe annual management fee is simply 1.5% of $200 million, or $3 million. After the management fee of $3 million, the fund earned a profit of $50 million ($253 – $3 – $200). The incentive fee on the profit is $15 million ($50 × 30% = $15)
IncorrectThe annual management fee is simply 1.5% of $200 million, or $3 million. After the management fee of $3 million, the fund earned a profit of $50 million ($253 – $3 – $200). The incentive fee on the profit is $15 million ($50 × 30% = $15)
- Question 14 of 30
14. Question
Person X is a manager that earns a portion of investment gains without compensating investors for investment losses. Which category does he fall into?
CorrectManagers earn a portion of investment gains in asymmetric incentive fees, without compensating investors for investment losses.
IncorrectManagers earn a portion of investment gains in asymmetric incentive fees, without compensating investors for investment losses.
- Question 15 of 30
15. Question
Consider a $1 billion hedge fund at the beginning of a new incentive fee calculation period with a 20 percent incentive fee. If the hedge fund calculates incentive fees annually and starts the year very close to its high-water mark, what would be the value of the 10% annual asset volatility incentive fee over the next year, 20%, and 30% using the approximation formula for the at-the-money incentive fee?
CorrectThe three volatility amounts to approximately $8 million, $16 million and $24 million.
IncorrectThe three volatility amounts to approximately $8 million, $16 million and $24 million.
- Question 16 of 30
16. Question
Market neutrality is also known as mean neutral but when mean neutral occurs?
CorrectMean neutrality is when a fund shows zero exposure to beta or correlation with the underlying market index.
IncorrectMean neutrality is when a fund shows zero exposure to beta or correlation with the underlying market index.
- Question 17 of 30
17. Question
What are primary purposes of funds of funds?
CorrectThe primary aim of fund funds is to reduce the idiosyncratic risk of an investment with any hedge fund manager and leverage the Fund’s potential expertise in selecting and tracking hedge fund investments.
IncorrectThe primary aim of fund funds is to reduce the idiosyncratic risk of an investment with any hedge fund manager and leverage the Fund’s potential expertise in selecting and tracking hedge fund investments.
- Question 18 of 30
18. Question
Which of the following is an agreement with a major bank to provide temporary cash for specified needs with pre-specified conditions?
CorrectThe liquidity facility is a standby agreement with a major bank to provide pre-specified conditions for temporary cash on specified needs.
IncorrectThe liquidity facility is a standby agreement with a major bank to provide pre-specified conditions for temporary cash on specified needs.
- Question 19 of 30
19. Question
Why Do Not Exercise Certain In-the-Money Options Immediately?
CorrectThe importance of delaying a decision to exercise an option for in-the-money growth, as with all options in-the-money, is based on an analysis of the advantage of awaiting further information.
IncorrectThe importance of delaying a decision to exercise an option for in-the-money growth, as with all options in-the-money, is based on an analysis of the advantage of awaiting further information.
- Question 20 of 30
20. Question
Consider a permanent right with an inherent present value of $100. The owner of the option assumes that potential increases in the option’s moneyness are unpredictable and are symmetric for simplicity. If the moneyness falls to $200, what is the intrinsic value of the option?
CorrectIf the moneyness of the option grows substantially higher by increments of, say, $200, then the option’s intrinsic value will rise to $300. But if the moneyness falls by the same amount ($200), the option’s intrinsic value will not fall to –$100; it can only fall to $0
IncorrectIf the moneyness of the option grows substantially higher by increments of, say, $200, then the option’s intrinsic value will rise to $300. But if the moneyness falls by the same amount ($200), the option’s intrinsic value will not fall to –$100; it can only fall to $0
- Question 21 of 30
21. Question
According to the PVGO valuation theory, which of the following on corporate finance is correct?
CorrectThe present value of growth opportunities is a high value attributed to an investment based on the assumption that underlying assets have exceptional potential earnings.
IncorrectThe present value of growth opportunities is a high value attributed to an investment based on the assumption that underlying assets have exceptional potential earnings.
- Question 22 of 30
22. Question
Which real estate derives most or all of its returns from the appreciation of the property, and can show significant volatility in value and returns?
CorrectOpportunistic real estate is expected to derive most or all of its returns from the appreciation of the property and can show significant volatility in value and returns.
IncorrectOpportunistic real estate is expected to derive most or all of its returns from the appreciation of the property and can show significant volatility in value and returns.
- Question 23 of 30
23. Question
Mortgage A has a PSA rate of 200 percent per month and is now five years old. What is CPR? If the PSA standard is 6 percent at 30 months.
CorrectSince the mortgage is already at or beyond the month 60, the mortgage CPR now stands at 12 percent.
IncorrectSince the mortgage is already at or beyond the month 60, the mortgage CPR now stands at 12 percent.
- Question 24 of 30
24. Question
How can we avoid specifying a precise relationship between unschedule prepayments and interest rates?
CorrectIdiosyncratic prepayment factor helps to prevent this.
IncorrectIdiosyncratic prepayment factor helps to prevent this.
- Question 25 of 30
25. Question
Which of the following is a pool of investment capital raised from private placements mixed together to buy commercial properties?
CorrectCommingled real estate funds (CREFs) are a type of private equity real estate fund that is a pool of private placement capital that is combined to buy commercial properties.
IncorrectCommingled real estate funds (CREFs) are a type of private equity real estate fund that is a pool of private placement capital that is combined to buy commercial properties.
- Question 26 of 30
26. Question
Which represent more direct consumer claims than common stocks, with less dependence on factors such as intangible assets and management skills that generate value in a company?
CorrectReal assets tend to show more direct customer claims than common stocks do.
IncorrectReal assets tend to show more direct customer claims than common stocks do.
- Question 27 of 30
27. Question
Performance of which is significantly impacted by the skill and effectiveness of routine and relatively frequent managerial decision making?
CorrectThe efficiency of operationally focused real assets is significantly influenced by the capacity and effectiveness of routine and reasonably frequent decision-making in the management.
IncorrectThe efficiency of operationally focused real assets is significantly influenced by the capacity and effectiveness of routine and reasonably frequent decision-making in the management.
- Question 28 of 30
28. Question
How can we understand an investment strategy, particularly using a statistical approach , based on its investment strategies or styles?
CorrectIn particular, style analysis is the process of understanding an investment strategy using a statistical approach based on an investment strategy or styles grouping of funds.
IncorrectIn particular, style analysis is the process of understanding an investment strategy using a statistical approach based on an investment strategy or styles grouping of funds.
- Question 29 of 30
29. Question
An analysis of a 50-week rolling window with exactly four years Data (208 weeks).How many independent statistical analyzes would there be?
CorrectThere would be only four independent analyses, such as 1–50, 51–100, 101–150, and 151–200.
IncorrectThere would be only four independent analyses, such as 1–50, 51–100, 101–150, and 151–200.
- Question 30 of 30
30. Question
Which of the following is the distinguishing characteristic used by marketwide return factors in the multifactor analysis?
CorrectFinding empirically measured exposures to factors for each asset (or fund), rather than risk exposures found by a fundamental asset or fund analysis is characteristic.
IncorrectFinding empirically measured exposures to factors for each asset (or fund), rather than risk exposures found by a fundamental asset or fund analysis is characteristic.
