• Question 1

1 out of 1 points
Which of the following least likely describes an advantage of investing in hedge funds
through a fund of funds? A fund of funds may provide investors with:

• Question 2
1 out of 1 points
Which of the following statements is least likely an advantage of investing in hedge funds
through a fund of funds? Funds of funds provide:

• Question 3
1 out of 1 points
Which classification of hedge funds is least likely to use a short position in stock as a part of
its strategy?

• Question 4
1 out of 1 points
Venture capital investments used to provide capital for companies initiating commercial
manufacturing and sales are most likely to be considered a form of:

• Question 5
0 out of 1 points
Mortgages are considered to be a form of real estate investment because:

• Question 6
0 out of 1 points
Johnson is considering the purchase of Happy Valley Acres, a 300-unit apartment complex.
She has hired Carson, CFA, to advise her on the investment. Carson has estimated the
following data for Happy Valley’s next accounting period:
Required return = 8%.
The property’s net operating income (NOI) is $2.70 million and the value should be closest
to:

• Question 7
1 out of 1 points
The gross rental income for an apartment building allowing for vacancies is $500,000.
Estimated expenses total $200,000. If the capitalization rate is 10%, the value of this building
using the direct capitalization approach is closest to:

• Question 8
1 out of 1 points
A real estate property has net operating income of $956,000, requires taxes of $143,400,
and has a capitalization rate of 16%. The estimated property value is closest to:

• Question 9
1 out of 1 points
 Real estate agent contacts an investor regarding a property that has recently come on the
market. The real estate agent can provide reliable information regarding the property’s net
operating income, as well as the prevailing market cap rate, based on recent comparable
sales. The investor can best estimate the market value of the property, with the information
supplied by the real estate agent, using the:

• Question 10
1 out of 1 points
The founders of the ABCD Corporation believe their idea for a new weight-loss pill will be
tremendously successful. ABCD Corporation is currently seeking venture capitalists to invest
in their company so they can do further research and hopefully someday develop their idea
into a marketable product. This stage of venture capital investing can best be described as:

• Question 11
1 out of 1 points
A hedge fund that takes perfectly offsetting long and short positions is best described as
a(n):

• Question 12
1 out of 1 points
Money managers and individual investors can indirectly participate in the commodities
market through all of the following investment vehicles EXCEPT:

• Question 13
1 out of 1 points
The difference between spot and futures prices? Spot prices are always:

• Question 14
1 out of 1 points
A high water mark of £150 million was established two years ago for a British hedge fund.
The end-of-year value before fees for last year was £140 million. This year's end-of-year
value before fees is £155 million. The fund charges "2 and 20." Management fees are paid
independently of incentive fees and are calculated on end-of-year values. What is the total
fee paid this year?

• Question 15
0 out of 1 points
A hedge fund with a 2 and 20 fee structure has a hard hurdle rate of 5%. If the incentive fee
and management fee are calculated independently and the management fee is based on
beginning-of-period asset values, an investor's net return over a period during which the
gross value of the fund has increased 22% is closest to:

• Question 16
1 out of 1 points
The risk and return spectrum for private equity can best be described by which of the
following statements?
• Question 17
1 out of 1 points
Mr. Ramchandra Huha is planning to buy a office premises with 5000 Sqft carpet area. He
forsees a potential Net operating income from the building at $10,000/month. How much
would Mr. Huha will be willing to pay for this property if his estimated capitalization rate is
8%

• Question 18
1 out of 1 points

A Deeya Limited is planning to grow in the area of energy storage devices. Deeya has
already developed the product and has filed more than 10 patents while the process of
development of most efficient energy storage device. The company has also hired a very
good production team and completed the pilot production. The product of pilot production
was hugely successful. Now Deeya, want to set up a complete facility for the production of
the efficient energy storage device. They approached a fund for the investment into the
company. Which type of the fund the company should approach?

• Question 19
1 out of 1 points
Which combination of positions will tend to protect the owner from downside risk?

• Question 20
1 out of 1 points
Which of the following statements is true?

• Question 21
1 out of 1 points
How is the gamma of an option defined? Gamma is the change in the:

• Question 22
1 out of 1 points
When an option’s gamma is higher:

• Question 23
1 out of 1 points
Gamma is the greatest when an option:

• Question 24
1 out of 1 points
Two call options have the same delta but option A has a higher gamma than option B. When
the price of the underlying asset increases, the number of option A calls necessary to hedge
the price risk in 100 shares of stock, compared to the number of option B calls, is a:

• Question 25
1 out of 1 points
In order to compute the implied asset price volatility for a particular option, an investor:
• Question 26
1 out of 1 points
Which of the following methods is NOT used for estimating volatility inputs for the Black-
Scholes model?

• Question 27
1 out of 1 points
Which of the following best describes the implied volatility method for estimated volatility
inputs for the Black-Scholes model? Implied volatility is found:

• Question 28
1 out of 1 points
Which of the following best explains the sensitivity of a call option's value to volatility? Call
option values:

• Question 29
1 out of 1 points
Which of the following is TRUE for an option's price? An option's price is:

• Question 30
1 out of 1 points
Which of the following is TRUE concerning an option's sensitivity to volatility as a function of
an asset's price? An option's sensitivity to volatility is highest when the option:

• Question 31
1 out of 1 points
If we use four of the inputs into the Black-Scholes-Merton option-pricing model and solve
for the asset price volatility that will make the model price equal to the market price of the
option, we have found the:

• Question 32
1 out of 1 points
An investor buys a 30 put on a share of stock for a premium of $7 and simultaneously buys
a share of stock for $26. The breakeven price on the position and the maximum gain on the
position are:
Breakeven price Maximum gain

• Question 33
1 out of 1 points
An investor buys a share of stock at $33 and simultaneously writes a 35 call for a premium
of $3. What is the maximum gain and loss?
Maximum Gain Maximum Loss

• Question 34
1 out of 1 points
The shape of a protective put payoff diagram is most similar to a:
• Question 35
1 out of 1 points
Covered call position is:

• Question 36
1 out of 1 points
Jasper Quartermaine is interested in using the options market to create “insurance” against
a severe drop in the value of a stock portfolio that he owns. How could he best accomplish
this goal and what is this type of strategy called?
Type of option Strategy

• Question 37
1 out of 1 points
The current price of a non-dividend-paying stock is $30. Over the next six months it is
expected to rise to $36 or fall to $26. Assume the risk-free rate is zero. An investor sells call
options with a strike price of $32. What is the value of each call option?

• Question 38
1 out of 1 points
Which of the following creates a bull spread?

• Question 39
1 out of 1 points
Which of the following creates a bear spread?

• Question 40
1 out of 1 points
What is the number of different option series used in creating a butterfly spread?

• Question 41
1 out of 1 points
How can a straddle be created?

• Question 42
1 out of 1 points
A trader creates a long butterfly spread from options with strike prices $60, $65, and $70 by
trading a total of 400 options. The options are worth $11, $14, and $18. What is the
maximum net gain (after the cost of the options is taken into account)?

• Question 43
1 out of 1 points
You manage a hedge fund with $400 million in assets. Your fee structure provides for a 1%
annual management fee with a 20% incentive on returns over an 8% benchmark. If the fund
value is $445 million at the end of the year, what is your fee?

• Question 44
1 out of 1 points
 You manage a hedge fund with $300 million in assets. Your fee structure provides for a 1%
annual management fee with a 20% incentive on returns over a 12% benchmark. If the fund
value, before fees, is $345 million at the end of the year, what is the net return to the
investors?

• Question 45
1 out of 1 points
Maximus Hedge Fund has a 3 and 20 fee structure without a hurdle rate. All fees are
calculated based on the NAV at the beginning of the year. The fund's NAV has increased
from $200 million at the beginning of the year to $240 million at the year-end before any
fees have been deducted. The fund's high watermark is at $200 million. Which of the
following is the incentive fee earned by the fund manager as a percentage of the hedge
fund's NAV?

• Question 46
1 out of 1 points
Which of the following least likely describes an advantage of investing in hedge funds
through a fund of funds? A fund of funds may provide investors with:

• Question 47
1 out of 1 points
Mr. Ramchandra Huha is planning to buy a office premises with 5000 Sqft carpet area. He
foresees a potential Net operating income from the building at $10,000/month. How much
would Mr. Huha will be willing to pay for this property if his estimated capitalization rate is
8%

• Question 48
1 out of 1 points
Which classification of hedge funds is least likely to use a short position in stock as a part of
its strategy?

• Question 49
1 out of 1 points
The gross rental income for an apartment building allowing for vacancies is $500,000.
Estimated expenses total $200,000. If the capitalization rate is 10%, the value of this building
using the direct capitalization approach is closest to:

• Question 50
1 out of 1 points
Real estate agent contacts an investor regarding a property that has recently come on the
market. The real estate agent can provide reliable information regarding the property’s net
operating income, as well as the prevailing market cap rate, based on recent comparable
sales. The investor can best estimate the market value of the property, with the information
supplied by the real estate agent, using the:

• Question 51
1 out of 1 points
 A high water mark of £150 million was established two years ago for a British hedge fund.
The end-of-year value before fees for last year was £140 million. This year's end-of-year
value before fees is £155 million. The fund charges "2 and 20." Management fees are paid
independently of incentive fees and are calculated on end-of-year values. What is the total
fee paid this year?

• Question 52
1 out of 1 points
A Deeya Limited is planning to grow in the area of energy storage devices. Deeya has
already developed the product and has filed more than 10 patents while the process of
development of most efficient energy storage device. The company has also hired a very
good production team and completed the pilot production. The product of pilot production
was hugely successful. Now Deeya, want to set up a complete facility for the production of
the efficient energy storage device. They approached a fund for the investment into the
company. Which type of the fund the company should approach?

• Question 53
1 out of 1 points
Both event-driven and macro hedge fund strategies use:

• Question 54
1 out of 1 points
An investor in a private equity fund is concerned that the general partner can receive
incentive fees in excess of the agreed-on incentive fees by making distributions over time
based on profits earned rather than making distributions only at exit from investments of
the fund. Which of the following is most likey to protect the investor from the general
partner receiving excess fees?

• Question 55
1 out of 1 points
Kloss Investments is an investment adviser whose clients are small institutional investors.
Muskogh Charitable Foundation (the “Foundation”) is a client with $70 million of assets
under management. The Foundation has a traditional asset allocation of 65% stocks/35%
bonds. Risk and return characteristics for the Foundation’s current portfolio are presented
in Panel A of the below table.
Kloss’ CIO, Christine Singh, recommends to Muskogh’s investment committee that it should
add a 10% allocation to hedge funds. The investment committee indicates to Singh that
Muskogh’s primary considerations for the Foundation’s portfolio are that any hedge fund
strategy allocation should: a) limit volatility, b)maximize risk-adjusted returns, and c) limit
downside risk.
Singh’s associate prepares expected risk and return characteristics for three portfolios that
have allocations of 60% stocks, 30% bonds, and 10% hedge funds, where the 10% hedge
fund allocation follows either an equity market-neutral, global macro, or convertible
arbitrage strategy. The risk and return characteristics of the three portfolios are presented
in Panel B table 1.
Hedge Fund SD(%) Sharpe Sortino MaximumDrawdown(%)
strategy Ratio Ratio
Panel A: Current Portfolio
N/A 8.75 0.82 1.25 16.2
 Panel B: Three potential portfolios with a 10% Hedge Fund allocation
Equity market 8.72 0.80 1.21 15.1
neutral
Global macro 8.55 0.95 1.35 15.0
Convertible 8.98 0.83 1.27 20.2
arbitrage

Which hedge fund strategy Singh should view as most suitable for meeting the
considerations expressed by Muskogh’s investment committee?

• Question 56
1 out of 1 points
A hedge fund has the following fee structure: Annual management fee based on year-end
• AUM 2%
• Incentive fee 20%
• Hurdle rate before incentive fee collection starts 4%
• Current high-water mark $610 million
The fund has a value of $583.1 million at the beginning of the year. After one year, it has a
value of $642 million before fees. The net return to an investor for this year is closest to:

• Question 57
1 out of 1 points
The per-share value of an investment company’s assets minus its liabilities is called the:

• Question 58
1 out of 1 points
For the equity shares of an open-end investment company, the share value:

• Question 59
1 out of 1 points
You are going to invest in a closed-end mutual fund and are told that the net asset value of
the fund is $20.40, and the share price is $18.20. What is the discount you would receive or
the premium that you would pay?

• Question 60
1 out of 1 points
Only successful, ongoing hedge funds are included in hedge fund databases. The resulting
inflation of reported hedge fund performance can be best described as:

• Question 61
1 out of 1 points
An investor is considering investing in a venture capital project that will have a large payoff
at exit, which is estimated to occur in four years. The investor realizes that the risk of failure
is high, given the following estimated probabilities:
Year 1 2 3 4
Failure probability 0.30 0.28 0.28 0.25

The probability that the project will survive to the end of the fourth year is:
• Question 62
1 out of 1 points
An analyst wanting to assess the downside risk of an alternative investment is least likely to
use the investment’s:

• Question 63
1 out of 1 points
A portfolio manager is analyzing a $2,000,000 venture capital investment. If the project
succeeds until the end of the sixth year, the net present value (NPV) of the project is
$6,587,000. The project has a 32.69 percent probability of surviving to the end of the sixth
year. The expected NPV of the project is:

• Question 64
1 out of 1 points
John Williams wants to purchase an apartment complex. The complex consists of 75 units
each renting for $700 per month. The estimated vacancy and collection loss rate is 7%. The
insurance for the building is $40,000 annually and taxes are $22,000 annually. Utilities are
$18,000 and the maintenance expense is $29,000. Assume a market cap rate of 11%. Recent
sales of nearby apartment complexes have resulted in the following information.
Characteristics Units Slope Coefficient in $ per Unit
Proximity to downtown Miles -350,000
Proximity to public transportation Blocks -500
Building size Units +75,000
Williams' proposed apartment complex is 4 miles away from downtown and 6 blocks away
from the nearest public transportation. What is the net operating income (NOI) for Williams'
proposed apartment complex?

• Question 65
1 out of 1 points
Venture capital investments used to provide capital for companies initiating commercial
manufacturing and sales are most likely to be considered a form of

• Question 66
1 out of 1 points
Capricorn Fund of Funds invests GBP 100 million in each of Alpha Hedge Fund and ABC
Hedge Fund. Capricorn FOF has a “1 and 10” fee structure. Management fees and incentive
fees are calculated independently at the end of each year. After one year, net of their
respective management and incentivefees, the investment in Alpha is valued at GBP80
million and the investment in ABC is valued at GBP140 million. The annual return to an
investor in Capricorn, net of fees assessed at the fund of funds level, is closest to:

• Question 67
1 out of 1 points
Which combination of positions will tend to protect the owner from downside risk?

• Question 68
1 out of 1 points
How is the gamma of an option defined? Gamma is the change in the:
• Question 69
1 out of 1 points
When an option’s gamma is higher:

• Question 70
1 out of 1 points
Which of the following best describes the implied volatility method for estimated volatility
inputs for the Black-Scholes model? Implied volatility is found:

• Question 71
1 out of 1 points
Which of the following best explains the sensitivity of a call option's value to volatility? Call
option values:

• Question 72
1 out of 1 points
If we use four of the inputs into the Black-Scholes-Merton option-pricing model and solve
for the asset price volatility that will make the model price equal to the market price of the
option, we have found the:

• Question 73
1 out of 1 points
How can a straddle be created?

• Question 74
1 out of 1 points
Which of the following creates a bear spread?

• Question 75
0 out of 1 points
Aline Nunes, a junior analyst, works in the derivatives research division of an international
securities firm. Nunes’s supervisor, Catia Pereira, asks her to conduct an analysis of various
option trading strategies relating to shares of three companies: IZD, QWY, and XDF. On 1
February, Nunes gathers selected option premium data on the companies, presented in the
table below.
Share price and option premiums as of first February in ZAR million
Company Share price Call premium Option date/Strike Put Premium
IZD 93.93 9.45 April/87.50 1.67
2.67 April/95.00 4.49
1.68 April/97.50 5.78
QWY 28.49 4.77 April/24.00 0.35
3.96 April/25.00 0.50
0.32 April/31.00 3.00
XDF 74.98 0.23 February/80.00 5.52
2.54 April/75.00 3.22
2.47 December/80.00 9.73

Nunes considers the option strategy relating to IZD to Construct a synthetic long put
 position in IZD:
Strategy 1 would require Nunes to buy:

• Question 76
0 out of 1 points
Aline Nunes, a junior analyst, works in the derivatives research division of an international
securities firm. Nunes’s supervisor, Catia Pereira, asks her to conduct an analysis of various
option trading strategies relating to shares of three companies: IZD, QWY, and XDF. On 1
February, Nunes gathers selected option premium data on the companies, presented in the
table below.
Share price and option premiums as of first February in ZAR million
Company Share price Call premium Option date/Strike Put Premium
IZD 93.93 9.45 April/87.50 1.67
2.67 April/95.00 4.49
1.68 April/97.50 5.78
QWY 28.49 4.77 April/24.00 0.35
3.96 April/25.00 0.50
0.32 April/31.00 3.00
XDF 74.98 0.23 February/80.00 5.52
2.54 April/75.00 3.22
2.47 December/80.00 9.73

Nunes considers the option strategy relating to IZD to Buy 100 shares of IZD and writing the
April R95.00 strike call option on IZD
Based on the above, Nunes should expect his strategy to be least profitable if the share
price of IZD at option expiration is:

• Question 77
1 out of 1 points
Stanley Kumar Singh, CFA, is the risk manager at SKS Asset Management. He works with individual
clients to manage their investment portfolios. A client, Wanda Tills, does not currently own Walnut
shares (company managed by SKS Asset Management) and has asked
Singh to explain the profit potential of three strategies using options in Walnut: a long straddle, a bull
call spread, and a bear put spread. In addition, Tills asks Singh to explain the gamma of a call option.
In response, Singh prepares a memo to be shared with Tills that provides a discussion of gamma and
presents his analysis on three option strategies:
Strategy 1: A long straddle position at the R67.50 strike option
Strategy 2: A bull call spread using the R65 and R70 strike options
Strategy 3: A bear put spread using the R65 and R70 strike options
Singh gathers additional information in table below to explore various strategies to Tills
Walnut Corporation current stock price: R67.79. Walnut Corporation European Options (ZAR)
Exercise Price Market call price Call Delta Market Put price Put Delta
55.00 12.83 1.00 0.24 -0.05
65.00 3.65 0.91 1.34 -0.29
67.00 1.99 0.63 2.26 -0.42
70.00 0.91 0.37 3.70 0.55
80.00 0.03 0.02 12.95 0.76

Based on the data above, Singh would advise Tills that the call option with the largest gamma would
have a strike price closest to:
• Question 78
1 out of 1 points
Stanley Kumar Singh, CFA, is the risk manager at SKS Asset Management. He works with
individual clients to manage their investment portfolios. A client, Nigel French, is a trader
who does not currently own shares of Walnut Corporation, company managed by SKS Asset
Management. French has told Singh that he believes that Walnut shares will experience a
large move in price after the upcoming quarterly earnings release in two weeks. French also
tells Singh, however, that he is unsure which direction the stock will move. French asks Singh
to recommend an option strategy that would allow him to profit should the share price
move in either direction.
The option strategy that Singh is most likely to recommend to French is a:

• Question 79
1 out of 1 points
Stanley Kumar Singh, CFA, is the risk manager at SKS Asset Management. He works with individual
clients to manage their investment portfolios. One client, Sherman Hopewell, is worried about how
short-term market fluctuations over the next three months might impact his equity position in Walnut
Corporation. Although Hopewell is concerned about short-term downside price movements, he wants
to remain invested in Walnut shares because he remains positive about its long-term performance.
Hopewell has asked Singh to recommend an option strategy that will keep him invested in Walnut
shares while protecting against a short-term price decline. Singh gathers the information in table
below to explore various strategies to address Hopewell’s concerns.
Walnut Corporation current stock price: R67.79. Walnut Corporation European Options (ZAR)
Exercise Price Market call price Call Delta Market Put price Put Delta
55.00 12.83 1.00 0.24 -0.05
65.00 3.65 0.91 1.34 -0.29
67.00 1.99 0.63 2.26 -0.42
70.00 0.91 0.37 3.70 0.55
80.00 0.03 0.02 12.95 0.76

The option strategy Singh is most likely to recommend to Hopewell is a:

• Question 80
1 out of 1 points
Aline Nunes, a junior analyst, works in the derivatives research division of an international
securities firm. Nunes’s supervisor, Catia Pereira, asks her to conduct an analysis of various
option trading strategies relating to shares of three companies: IZD, QWY, and XDF. On 1
February, Nunes gathers selected option premium data on the companies, presented in the
table below.
Share price and option premiums as of first February in ZAR million
Company Share price Call premium Option date/Strike Put Premium
IZD 93.93 9.45 April/87.50 1.67
2.67 April/95.00 4.49
1.68 April/97.50 5.78
QWY 28.49 4.77 April/24.00 0.35
3.96 April/25.00 0.50
0.32 April/31.00 3.00
XDF 74.98 0.23 February/80.00 5.52
2.54 April/75.00 3.22
2.47 December/80.00 9.73
 Nunes considers the option strategy to Buy 100 shares of QWY, buying the April R24.00
strike put option, and writing the April R31.00 strike call option. The above strategy
is best described as a:

• Question 81
1 out of 1 points
Jasper Quartermaine is interested in using the options market to create “insurance” against
a severe drop in the value of a stock portfolio that he owns. How could he best accomplish
this goal and what is this type of strategy called?
Type of option Strategy

• Question 82
1 out of 1 points
Which of the following statements best describes the delta of vanilla options?

• Question 83
1 out of 1 points
Which of the following statements best describes the range of possible values of the delta of
a call option?

Thursday, 6 October 2022 20:41:20 o'clock SAST