Over the counter

Costs +, Call Option value +, Put Option -

Benefits +, Call Option value -, Put Option +
Hedge fund losses are most likely to be magnified by a:

(a) margin call (Answer)

(b) lockup period.
(c) redemption notice period.
Distressed debt investing involves purchasing the debt of a troubled company, often at a steep discount. Buying
a troubled company's debt allows investors to turn a profit if the company recovers. Investors are repaid first if
and when the company goes bankrupt.
Important*

A characteristic of farmland strongly distinguishing it from timberland is its:

commodity price-driven returns.

inherent rigidity of production for output. (Answer)
value as an offset to other human activities.
1. Roll yield—The yield due to a difference between the spot price and futures price, or a difference between two futures prices with different expiration dates. Futures
prices converge toward spot prices as contracts get closer to expiration. Roll yield is positive for a market in backwardation and negative for a market in contango.
2. Collateral yield—The interest earned on collateral required to enter into a futures contract.
3. Change in spot prices—The total price return is a combination of the change in spot prices and the convergence of futures prices to spot prices over the term of
the futures contract.
Benefits of investing in Real Estate:
1. Rent as income
2. Potential for Capital Gains
3. Diversification
4. Hedging from inflation
Q1 The potential benefits of allocating a portion of a portfolio to alternative investments include:
1 ease of manager selection.
2 improvement in the portfolio’s risk–return relationship. (Solution)
3 accessible and reliable measures of risk and return.

Q2 From the perspective of the investor, the most active approach to investing in alternative investments is:
co-investing.
fund investing.
direct investing. (Solution)

Q3. In comparison to other alternative investment approaches, co-investing is most likely:

more expensive.
subject to adverse selection bias. (Solution)
the most flexible approach for the investor.

Q4. Relative to co-investing, direct investing due diligence is most likely:

harder to control.
more independent. (Solution)
equally thorough.

Q5. Which approach is most commonly used by equity hedge and event driven strategies?
Top down for Macro.
Bottom up (Solution)
Market timing.

Q6. Hedge fund losses are most likely to be magnified by a:

margin call. (Solution)
lockup period.
redemption notice period.

Q7. A collateralised loan obligation specialist is most likely to:

sell its debt at a single interest rate.
cater to niche borrowers in specific situations.
rely on diverse risk profiles to complete deals. (Solution)

Q8. A significant challenge to investing in timber is most likely its:

high correlation with other asset classes.
dependence on an international competitive context. (Solution)
return volatility compounded by financial market exposure.

Q9. A characteristic of farmland strongly distinguishing it from timberland is its:

commodity price-driven returns.
inherent rigidity of production for output. (Solution)
value as an offset to other human activities.

Q10. An investor seeks a current income stream as a component of total return and desires an investment that historically has low
correlation with other asset classes. The investment most likely to achieve the investor’s goals is: (2020 Q10)
timberland. (Solution)
collectibles.
commodities

Q11. Which of the following relates to a benefit when owning real estate directly?
Taxes (Solution)
Capital requirements
Portfolio concentration

Q12. Which of the following statements is true regarding mortgage-backed securities?

Insurance companies prefer the first-loss tranche.
When interest rates rise, prepayments will likely accelerate.
When interest rates fall, the low-risk senior tranche will amortise more quickly. (Solution)

Q13. Which of the following statements is true for REITs?

According to GAAP, equity REITs are exempt from reporting earnings per share.
Though equity REIT correlations with other asset classes are typically moderate, they are highest during steep market downturns. (Solution)
The REIT corporation pays taxes on income, and the REIT shareholder pays taxes on the REIT’s dividend distribution of after-tax earnings.

Q14. Which of the following is true regarding private equity performance calculations?
The money multiple calculation relies on the amount and timing of cash flows.
The IRR calculation involves the assumption of two rates. (Solution)
Because private equity funds have low volatility, accounting conventions allow them to use a lagged mark-to-market process.

Q15. Which is not true of mark-to-model valuations?

Return volatility may be understated.
Returns may be smooth and overstated.
A calibrated model will produce a reliable liquidation value. (Solution)